pre14a_041312.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
SCHEDULE 14A
 
 
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
 
 
Filed by the Registrant  þ
 
 
Filed by a Party other than the Registrant  o
 
 
Check the appropriate box:
 
þ   Preliminary Proxy Statement
o   Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
o   Definitive Proxy Statement
o   Definitive Additional Materials
o   Soliciting Material Pursuant to §240.14a-12
 
 
Adams Golf, Inc.
(Name of Registrant as Specified In Its Charter)


 
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
 
 
Payment of Filing Fee (Check the appropriate box):
 
   
o   
No fee required.
   
þ   
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
 
 
(1)  
Title of each class of securities to which transaction applies: Common Stock, par value $0.001 per share of Adams Golf, Inc. (the “Common Stock”).
 
 
 
 
(2)  
Aggregate number of securities to which transaction applies: 7,614,146 shares of Common Stock; 250,847 options to purchase Common Stock; and shares of restricted stock with respect to 381,365 shares of Common Stock.
 
 
 
 
(3)  
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
 
 
   
 
The maximum aggregate value was determined based upon the sum of (A) 7,614,146 shares of Common Stock multiplied by $10.80 per share; (B) options to purchase 250,847 shares of Common Stock with exercise prices less than $10.80 per share multiplied by $9.18 (which is the difference between $10.80 and the weighted average exercise price of $1.62 per share); and (C) shares of restricted stock with respect to 381,365 shares of Common Stock multiplied by $10.80 per share. In accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended, the filing fee was determined by multiplying $0.00001146 by the sum of the preceding sentence.
 
 
(4)  
Proposed maximum aggregate value of transaction: $88,654,294.26
 
 
 
 
(5)  
Total fee paid: $1,015.98
 
 
 
   
o   
Fee paid previously with preliminary materials.
   
o   
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
 
 
 

 
 
(1)  
Amount Previously Paid:
 
 
 
 
(2)  
Form, Schedule or Registration Statement No.:
 
 
 
 
(3)  
Filing Party:
 
 
 
 
(4)  
Date Filed:
 
 

 
 

 
Adams Golf, Inc.

2801 E. Plano Parkway
Plano, Texas 75074
 
 
 ], 2012
 
 Dear Stockholder:
 
 
The board of directors of Adams Golf, Inc., a Delaware corporation, has unanimously approved a merger agreement providing for the acquisition of Adams Golf, Inc. by Taylor Made Golf Company, Inc., a Delaware corporation and affiliate of adidas AG. If the merger contemplated by the merger agreement is completed, you will be entitled to receive $10.80 in cash, without interest and less any applicable withholding tax, for each share of Adams Golf, Inc. common stock owned by you immediately prior to completion of the merger (unless you have properly and validly perfected your statutory rights of appraisal with respect to the merger).
 
At a special meeting of our stockholders, you will be asked to consider and vote on a proposal to adopt the merger agreement. After careful consideration, the board of directors has unanimously approved the merger agreement, the merger and the other transactions contemplated by the merger agreement and determined that the merger is advisable and in the best interests of Adams Golf and its stockholders. The board of directors unanimously recommends that you vote “FOR” the proposal to adopt the merger agreement.
 
The special meeting will be held on [  ], 2012 at 9:00 a.m. local time, at 2801 E. Plano Parkway, Plano, Texas 75074. Notice of the special meeting and the related proxy statement are enclosed.  You should read the enclosed documents and the other documents referred to herein carefully (and any amendments or supplements thereto).
 
The attached proxy statement provides you with detailed information about the special meeting, the merger agreement and the merger. A copy of the merger agreement is attached as Annex A to the proxy statement. We encourage you to read the entire proxy statement and the merger agreement carefully. You may also obtain more information about Adams Golf from documents we have filed with the Securities and Exchange Commission, which you can obtain for free at the commission’s website www.sec.gov.
 
Your vote is very important regardless of the number of shares you own. We cannot complete the merger unless a majority of outstanding shares of common stock that are entitled to vote at the special meeting are voted in favor of the proposal to adopt the merger agreement. The failure of any stockholder to vote on the proposal to adopt the merger agreement will have the same effect as a vote against the proposal to adopt the merger agreement.
 
Whether or not you plan to attend the special meeting, please complete, date, sign and return, as promptly as possible, the attached proxy in the accompanying reply envelope.  If you attend the special meeting and vote in person, your vote by ballot will revoke any proxy previously submitted. If you hold your shares through a broker or other nominee, you should follow the procedures provided by your broker or nominee.
 
Thank you in advance for your cooperation and continued support.

Sincerely,

B.H. (Barney) Adams
Interim Chief Executive Officer and Chairman of the Board
 
Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the merger, passed upon the merits or fairness of the merger or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.
 
The proxy statement is dated [  ], 2012, and is first being mailed to stockholders on or about [  ], 2012.


Adams Golf, Inc.
2801 E. Plano Parkway
Plano, Texas 75074

 
 

 
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held On [  ], 2012
 
 
 
To the Stockholders of Adams Golf, Inc.:
 
A special meeting of stockholders of Adams Golf, Inc., a Delaware corporation (“Adams Golf” or the “Company”), will be held on [  ], 2012 at 9:00 a.m. local time, at 2801 E. Plano Parkway, Plano, Texas 75074, for the following purposes:
 
1.  Adoption of the Merger Agreement.  To consider and vote on a proposal to adopt the Agreement and Plan of Merger (the “Merger Agreement”), dated as of March 18, 2012, by and among Taylor Made Golf Company, Inc., a Delaware corporation (“Parent”), Apple Tree Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”), and the Company.  A copy of the Merger Agreement is attached as Annex A to the proxy statement. Pursuant to the terms of the Merger Agreement, Merger Sub will merge with and into the Company (the “Merger”) with the Company continuing as the surviving corporation and each issued and outstanding share of the Company’s common stock, par value $0.001 per share (the “Common Stock”) (other than shares owned by Parent, Merger Sub or the Company, or by any direct or indirect wholly-owned subsidiary or affiliate of Parent, in each case immediately prior to the effective time of the Merger, and shares held by stockholders, if any, who have properly and validly perfected their statutory rights of appraisal with respect to the Merger), will be converted into the right to receive $10.80 in cash, without interest and less any applicable withholding tax; and
 
2.  Adjournment of the Special Meeting.  To approve the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the Merger Agreement.
 
Only stockholders of record of Common Stock as of the close of business on [  ], 2012 are entitled to notice of and to vote at the special meeting or at any adjournment or postponement of the special meeting. All stockholders of record are cordially invited to attend the special meeting in person.
 
Your vote is very important, regardless of the number of shares of Common Stock you own. Adoption of the Merger Agreement requires the affirmative vote of a majority of the shares of Common Stock outstanding as of the close of business on the record date for the special meeting and entitled to vote thereon. Even if you plan to attend the special meeting in person, we request that you mark, sign, date and return the enclosed proxy prior to the special meeting to ensure that your shares will be represented at the special meeting. If you sign, date and mail your proxy card without indicating how you wish to vote, your vote will be counted as a vote “FOR” the adoption of the Merger Agreement.
 
If you fail to vote by proxy or in person, the effect will be that your shares will not be counted for purposes of determining whether a quorum is present at the special meeting and, if a quorum is present, will have the same effect as a vote against the adoption of the Merger Agreement. If you are a stockholder of record, voting in person at the special meeting will revoke any proxy previously submitted. If you hold your shares through a bank, broker or other custodian, you must obtain a legal proxy from such custodian in order to vote in person at the special meeting. If your shares are held by a bank or broker, please bring your statement evidencing your beneficial ownership of Common Stock and photo identification to the special meeting.
 
Stockholders of Adams Golf who do not vote in favor of the proposal to adopt the Merger Agreement will have the right to seek appraisal of the fair value of their shares of Common Stock if the Merger is completed, but only if they properly and validly perfect statutory rights of appraisal before the vote is taken on the Merger Agreement and comply with all requirements of Delaware law, which are summarized in the attached proxy statement.
 
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE MARK, DATE, SIGN AND RETURN, AS PROMPTLY AS POSSIBLE, THE ENCLOSED PROXY IN THE ACCOMPANYING REPLY ENVELOPE.  STOCKHOLDERS WHO ATTEND THE SPECIAL MEETING MAY REVOKE THEIR PROXIES AND VOTE IN PERSON.

By Order of the Board of Directors,
 
 
Pamela J. High
Secretary
Chief Financial Officer
Plano, Texas
 ], 2012

 
 

 

TABLE OF CONTENTS
 
 
         
   
Page
   
SUMMARY
   
1
 
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER
   
8
 
CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
   
12
 
THE PARTIES TO THE MERGER
   
13
 
THE SPECIAL MEETING
   
13
 
Time, Place and Purpose of the Special Meeting
   
13
 
Record Date and Quorum
   
13
 
Vote Required for Approval
   
14
 
Voting Agreements
   
14
 
Proxies and Revocation
   
14
 
Adjournments and Postponements
   
15
 
Appraisal Rights of Stockholders
   
15
 
Solicitation of Proxies
   
15
 
Questions and Additional Information
   
15
 
Availability of Documents
   
16
 
THE MERGER
   
17
 
Background of the Merger
   
17
 
Reasons for the Merger; Recommendation of the Board of Directors
   
19
 
Opinion of the Adams Golf Financial Advisor
   
21
 
Projected Financial Information
   
25
 
Financing of the Merger
   
27
 
Interests of Adams Golf Directors and Executive Officers in the Merger
   
27
 
Material Accounting Treatment
   
30
 
Material U.S. Federal Income Tax Consequences of the Merger to Our Stockholders
   
30
 
Regulatory Approvals
   
31
 
Antitrust Approvals
   
31
 
Litigation Relating to the Merger
   
32
 
Delisting and Deregistration of Common Stock
   
32
 
THE MERGER AGREEMENT
   
33
 
The Merger
   
33
 
Closing and Effective Time
   
33
 
Consideration to be Received in the Merger
   
33
 
Cancellation of Shares
   
33
 
Treatment of Stock Options and Restricted Stock
   
33
 
Appraisal Rights
   
34
 
Payment for Shares
   
34
 
Representations and Warranties
   
34
 
Covenants and Agreements
   
36
 
Operating Covenants
   
36
 
No Solicitation; Board Recommendation
   
38
 
Reasonable Best Efforts and Certain Pre-Closing Obligations
   
40
 
Access to Information; Confidentiality
   
41
 
Meeting of Our Stockholders
   
41
 
Indemnification and Insurance
   
41
 
Employee Benefit Matters
   
41
 
Additional Agreements
   
42
 
Conditions of the Merger
   
42
 

 
 

 


Termination
   
43
 
Termination Fees
   
43
 
Effect of Termination
   
44
 
Amendment
   
44
 
Extension; Waiver
   
44
 
THE VOTING AGREEMENTS
   
45
 
MARKET PRICE OF COMMON STOCK
   
46
 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
   
47
 
RIGHTS OF APPRAISAL
   
49
 
SUBMISSION OF STOCKHOLDER PROPOSALS
   
51
 
HOUSEHOLDING OF SPECIAL MEETING MATERIALS
   
51
 
WHERE YOU CAN FIND MORE INFORMATION
   
52
 
Annex A  Agreement and Plan of Merger, dated March 18, 2012, by and among Taylor Made Golf Company, Inc., Apple Tree Acquisition Corp. and Adams Golf, Inc.
   
 A-1
 
Annex B  Form of Voting Agreement
   
B-1
 
Annex C  Form of Gregory Voting Agreement
   
C-1
 
Annex D Opinion of Morgan Stanley & Co. LLC 
   
 D-1
 
Annex E  Section 262 of the Delaware General Corporation Law
   
E-1
 

 

 
 

 
Important Notice Regarding Internet Availability of Proxy Materials for the Special Meeting of Stockholders to be held on [  ], 2012. The proxy statement is available at
 
http://bnymellon.mobular.net/bnymellon/adgf.
 
 
PROXY STATEMENT
 
 
References to “Adams Golf,” the “Company,” “we,” “our” or “us” in this proxy statement refer to Adams Golf, Inc. and its subsidiaries unless otherwise indicated by context.
 
 
SUMMARY
 
 
The following summary highlights selected information in this proxy statement and may not contain all the information that may be important to you. Accordingly, we encourage you to read carefully this entire proxy statement, its annexes and the documents referred to or incorporated by reference in this proxy statement. Each item in this summary includes a page reference directing you to a more complete description of that topic. See “Where You Can Find More Information” beginning on page 52.
 
 
Proposals
 
You are being asked to vote on a proposal to adopt the Agreement and Plan of Merger (the “Merger Agreement”), dated as of March 18, 2012, by and among Taylor Made Golf Company, Inc., a Delaware corporation (“Parent”), Apple Tree Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”), and the Company.  Pursuant to the Merger Agreement, Merger Sub will merge with and into Adams Golf and Adams Golf will be the surviving corporation and a wholly-owned subsidiary of Parent (the “Merger”). In the event that there are not sufficient votes at the time of the special meeting to adopt the Merger Agreement, the stockholders may be asked to vote on a proposal to adjourn the special meeting to solicit additional proxies. See “The Special Meeting” beginning on page 13.
 
The Parties to the Merger (Page 13)
 
Adams Golf, Inc.

Adams Golf designs, assembles, markets and distributes premium quality, technologically innovative golf clubs for all skill levels.  Recently launched products include the Speedline Fast 12 drivers, Fast 12 LS drivers and the Speedline Fast 12 fairway woods, along with the Idea a12 OS irons and hybrids, Idea a12 hybrids, Idea Pro a12 irons and hybrids, Idea Tech V3 irons and hybrids, Redline irons, Idea a7 and a7 OS irons and hybrids, and Speedline 9088 UL drivers.  Adams Golf also develops new products under the Yes! Putters, Women's Golf Unlimited, Lady Fairway and Square 2 brands.

Adams Golf was incorporated in 1987 and redomesticated in Delaware in 1990. Our corporate headquarters and principal executive offices are located at 2801 E. Plano Parkway, Plano, Texas 75074, and our telephone number is (972) 673-9000.
 
Parent
 
Taylor Made Golf Company, Inc., a Delaware corporation, is an affiliate of adidas AG.  Taylor Made Golf Company, Inc. sells golf clubs, balls, clothing and accessories under the TaylorMade, adidas Golf and Ashworth brands.  Parent’s principal executive offices are located at 5545 Fermi Court, Carlsbad, CA 92008, and its telephone number is (760) 918-6000.

The adidas Group is one of the global leaders within the sporting goods industry, offering a broad range of products around the core brands: adidas, Reebok, TaylorMade, Rockport and Reebok-CCM Hockey. The adidas Group has more than 46,000 employees.  The adidas Group’s principal executive offices are located at Olympiaring 2, 91074 Herzogenaurach, Germany and its telephone number is 09132 842000.
 
Merger Sub
 
Apple Tree Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of Parent, was formed solely for the purpose of consummating the Merger. Merger Sub has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the Merger Agreement.  Merger Sub’s principal executive offices are located at c/o Taylor Made Golf Company, Inc., 5545 Fermi Court, Carlsbad, CA 92008 and its telephone number is (760) 918-6000.

 
1

 
The Merger (Page 32)
 
The Merger Agreement provides that Merger Sub will merge with and into Adams Golf with Adams Golf continuing as a wholly-owned subsidiary of Parent. In the Merger, each outstanding share of Adams Golf common stock, par value $0.001 per share (the “Common Stock”), that is outstanding immediately prior to the effective time of the Merger (the “Effective Time”) (other than shares owned by Adams Golf, or by Parent, Merger Sub or any direct or indirect wholly-owned subsidiary or affiliate of Parent, and shares held by Adams Golf stockholders, if any, who have properly and validly perfected their statutory rights of appraisal with respect to the Merger) will be converted into the right to receive $10.80 in cash, without interest and less any applicable withholding tax, which we refer to in this proxy statement as the merger consideration.
 
Effects of the Merger (Page 33)
 
If the Merger is completed, you will be entitled to receive $10.80 in cash, without interest and less any applicable withholding taxes, for each share of Common Stock that you own immediately prior to the completion of the Merger, unless you have properly and validly perfected your statutory rights of appraisal with respect to the Merger. As a result of the Merger, Adams Golf will cease to be an independent, publicly-traded company. You will not own any shares of the surviving corporation or Parent and will not have any rights as a stockholder following consummation of the Merger.
 
The Special Meeting (Page 13)
 
Time, Place and Date (Page 13)
 
The special meeting will be held on [  ], 2012 at 9:00 a.m. local time, at 2801 E. Plano Parkway, Plano, Texas 75074.
 
Purpose (Page 13)
 
You will be asked to consider and vote upon a proposal to adopt the Merger Agreement, pursuant to which Merger Sub will merge with and into Adams Golf with Adams Golf continuing as the surviving corporation and a wholly-owned subsidiary of Parent, and to approve the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies.
 
Record Date and Quorum (Page 13)
 
You are entitled to vote at the special meeting if you owned shares of Common Stock at the close of business on [ • ], 2012, the record date for the special meeting. You will have one vote for each share of Common Stock that you owned as of the close of business on the record date. As of the close of business on the record date, there were [7,995,511] shares of Common Stock, including [381,365] unvested restricted shares of Common Stock (“Restricted Stock Shares”), outstanding and entitled to vote. The holders of a majority of the shares of Common Stock entitled to vote at the special meeting, present in person or represented by a duly authorized and properly completed proxy, constitute a quorum for the purpose of considering the proposals.
 
Vote Required (Page 14)
 
Completion of the Merger requires the adoption of the Merger Agreement by the affirmative vote of a majority of shares of the issued and outstanding Common Stock entitled to vote thereon. Failure to vote your shares of Common Stock by proxy or in person or an abstention will have the same effect as voting against adoption of the Merger Agreement. Approval of the proposal to adjourn the special meeting, if necessary or appropriate, for the purpose of soliciting additional proxies requires the affirmative vote of a majority of the votes cast by the holders of all Common Stock present in person or represented by proxy at the special meeting and entitled to vote on the matter. Failure to vote your shares of Common Stock or an abstention will have no effect on the approval of the proposal to adjourn the special meeting.
 
Common Stock Ownership of Directors and Executive Officers (Page 14)
 
As of the close of business on the record date, the directors and executive officers of Adams Golf beneficially held in the aggregate [2,835,965] shares of Common Stock, including [88,750] unvested Restricted Stock Shares, representing approximately 35.5% of the shares of Common Stock entitled to be voted at the special meeting.
 
Voting of Directors and Certain Executive Officers (Page 14)

 
2

 
As a condition of their willingness to enter into the Merger Agreement, Parent and Merger Sub required that each of our directors, together with SJ Strategic Investments, LLC (“SJ Strategic”), an affiliate of our director, Mr. John M. Gregory, enter into a voting agreement with Parent agreeing to vote “FOR” the approval of the Merger Agreement and any other proposal in favor of the Merger and against any other competing business combination proposals and granting an irrevocable proxy to Parent with respect to such stockholder’s shares of Common Stock. As of the record date, our directors, including SJ Strategic, beneficially held and are entitled to vote (or control the vote of), in the aggregate, 2,718,937 of outstanding shares of Common Stock (plus approximately 75,000, in the aggregate, unvested Restricted Stock Shares and shares issuable upon the exercise of options to purchase Common Stock), representing approximately 34% of the outstanding shares of our Common Stock.  As of the date of this proxy statement there are no other outstanding business combination proposals.  Pursuant to such voting agreements, if such stockholders acquire beneficial or record ownership of any additional shares of Common Stock, such shares will also be subject to such voting agreements.  However, the shares of Common Stock subject to such voting agreements will be reduced, as provided for in such voting agreements, to equal 30%, in the aggregate, of the outstanding shares of Common Stock if the board of directors of the Company makes an Adverse Recommendation Change following an Intervening Event (each, as defined in the Merger Agreement, see “The Merger Agreement—No Solicitation; Board Recommendation” on page 38) in compliance with the Merger Agreement.

Voting and Proxies (Page 14)
 
Any stockholder of record entitled to vote at the special meeting may submit a proxy by any of the following ways:
 
If you are a “stockholder of record,” you may vote your shares in person at the special meeting, or vote by mailing in the enclosed proxy card.  Please refer to the specific instructions set forth on the enclosed proxy card.

If you hold your shares in “street name,” you must obtain a proxy from your broker, banker, trustee or nominee giving you the right to vote the shares at the special meeting.  Please contact your broker/banker/trustee/nominee to obtain instructions for voting your shares.

Revocability of Proxy (Page 14)
 
You may revoke your proxy by doing one of the following:
 
·  
by sending a written notice of revocation to the Secretary of the Company that is actually received prior to the special meeting (note that if such written notice is not delivered to the Company at least one business day prior to the special meeting there is no guaranty that it will be received prior to the start of the special meeting), stating that you revoke your proxy;
 
·  
by signing a later-dated proxy card and submitting it so that it is received prior to the special meeting in accordance with the instructions included in the proxy card; or
 
·  
by attending the special meeting and voting your shares in person.
 
If you hold your shares through a broker, bank or other nominee and you have instructed a broker, bank or other nominee to vote your shares of Common Stock, follow the directions received from your broker, bank or other nominee to change your vote.
 
Treatment of Options and Other Awards (Page 33)
 
The Merger Agreement provides that each Restricted Stock Share, including unvested restricted stock awards, that is outstanding as of the Effective Time of the Merger will become fully vested immediately prior to the Effective Time and such formerly unvested Restricted Stock Share will be treated in the same manner as the other outstanding shares of Common Stock in connection with the Merger. The Merger Agreement also provides that each then-outstanding stock option not previously exercised, whether or not then vested and exercisable, will be converted into the right to receive a cash payment equal to (A) (i) the excess, if any, of $10.80 (without interest) over the per share exercise price applicable to such stock option multiplied by (ii) the number of shares of Common Stock subject to such stock option, less (B) any applicable withholding tax.
 
 Recommendation of the Board of Directors (Page 19)
 
The board of directors of the Company (the “Board of Directors” or the “Board”) has unanimously (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable and in the best interests of Adams Golf and the Adams Golf stockholders, (ii) authorized and approved in all respects the Merger Agreement and any other ancillary agreements contemplated thereby to which Adams Golf is a party, and authorized and directed the execution of the Merger Agreement and any other ancillary agreements contemplated thereby to which Adams Golf is a party and (iii) resolved to recommend that the stockholders of Adams Golf adopt the Merger Agreement at a special meeting of the stockholders. The Board of Directors unanimously recommends that our stockholders vote “FOR” the proposal to adopt the Merger Agreement and “FOR” the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies.

 
3

 
In reaching its decision, the Board of Directors evaluated a variety of business, financial and market factors and consulted with our management team and legal and financial advisors. See “The Merger — Reasons for the Merger; Recommendation of the Board of Directors” beginning on page 19.
 
Procedure for Receiving Merger Consideration (Page 34)
 
Promptly following the Effective Time, a paying agent will mail a letter of transmittal and instructions to you and the other Adams Golf stockholders. The letter of transmittal will tell you how to surrender your stock certificates in exchange for the merger consideration. You should not return your stock certificates with the proxy card, and you should follow the instructions in the letter of transmittal for the return of your stock certificates or the book entry transfer of any uncertificated shares.
 
Interests of Adams Golf Directors and Executive Officers in the Merger (Page 27)
 
In considering the recommendation of the Board of Directors, you should be aware that our directors and executive officers may have interests in the Merger that are different from, or in addition to, your interests as a stockholder and that may present actual or potential conflicts of interest, including the following:
 
·  
vested stock options (including certain unvested stock options with respect to which vesting will accelerate in connection with the Merger) to acquire our Common Stock that will be cancelled and converted into the right to receive, with respect to each such stock option, an amount of cash equal to the excess, if any, of $10.80 over the applicable exercise price of such stock option for each share of Common Stock subject to such option, without interest and less any withholding taxes;
 
·  
vested Restricted Stock Shares (including certain Restricted Stock Shares with respect to which vesting will accelerate in connection with the Merger) that will be cancelled and converted into the right to receive an amount in cash, without interest and subject to any withholding taxes, equal to $10.80 for each share of Common Stock in respect of such Restricted Stock Share;
 
·  
the Merger Agreement provides for indemnification arrangements for each of our current and former directors and executive officers that will continue for six (6) years following the Effective Time, as well as insurance coverage covering such director’s or executive officer’s service to Adams Golf as a director or executive officer;
 
·  
although no agreements have been entered into as of the date of this proxy statement, Parent may request some of our executive officers to remain after the Merger is completed, and such executive officers may, prior to the closing of the Merger, enter into new arrangements with Parent or its affiliates regarding employment with Parent or the surviving corporation;
 
·  
although no agreements or plans have been adopted as of the date of this proxy statement, Parent may implement, and the Company has agreed in the Merger Agreement to cooperate with Parent in connection with implementing, retention plans or programs for which our executive officers could be eligible that would be contingent upon the closing of the Merger and become effective immediately upon the Effective Time;
 
·  
B.H. (Barney) Adams, our Interim Chief Executive Officer, (i) will receive a bonus payment of $100,000 upon the earlier of the hiring of a replacement Chief Executive Officer and the consummation of the sale of the Company and (ii) has an agreement with the Company that provides certain severance payments and benefits in the case of the termination of his employment agreement under certain circumstances on or following a change of control;
 
·  
Pamela High, our Chief Financial Officer, has an agreement with the Company that provides certain severance payments and benefits in the case of the termination of her employment under certain circumstances on or following a change of control; and
 
· 
Russell Fleischer, the sole member of the Strategic Alternatives Negotiation Committee, was paid $25,000 in connection with his services in negotiating the Merger Agreement.
 
The Board of Directors was aware of these potential conflicts of interest and considered them, among other matters, in reaching its decision to approve the Merger Agreement and the Merger and the recommendation that our stockholders vote in favor of the proposal to adopt the Merger Agreement.
 
Opinion of Morgan Stanley & Co. LLC (Page 21)
 
Morgan Stanley & Co. LLC (“Morgan Stanley”) delivered its opinion to the Board of Directors that, as of March 18, 2012 and based upon and subject to the assumptions made, matters considered and qualifications and limitations set forth therein, the $10.80 per share in cash, without interest, to be received by the holders of shares of Common Stock in the Merger pursuant to the Merger Agreement was fair to such holders from a financial point of view.
 
 
4

 
The full text of the written opinion of Morgan Stanley, dated March 18, 2012, which sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Morgan Stanley in preparing such opinion, is attached as Annex D. Morgan Stanley provided its opinion for the use and benefit of the Board of Directors in connection with its consideration of the Merger. Morgan Stanley’s opinion is not a recommendation as to how any holder of shares of Common Stock should vote with respect to the Merger or any other matter. Pursuant to an engagement letter between Morgan Stanley and us, we agreed to pay Morgan Stanley a fee in the amount of approximately $2,225,000, plus expenses incurred in connection with its engagement, together with a discretionary fee that could be paid based upon the outcome of the transaction determined at the sole discretion of the Company based on its assessment of Morgan Stanley’s contribution to the overall outcome of the transaction.  The Company has not made a final determination as to whether it will pay any amount of such discretionary fee.
 
Regulatory Approvals (Page 31)
 
Except for the filing of a certificate of merger in Delaware at or before the Effective Time and subject to the exemption from antitrust approvals discussed below, we are unaware of any material federal, state or foreign regulatory requirements or approvals required for the execution of the Merger Agreement or completion of the Merger.

Antitrust Approvals (Page 31)

The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the implementing regulations thereunder (the "HSR Act"), and the antitrust and merger control statutes or regulations of foreign countries in which Adams Golf and Parent operate, may require the filing of information and documents with antitrust or competition authorities, the observance of waiting periods, and/or the receipt of approvals where certain thresholds are met.   This transaction is not subject to the requirements of the HSR Act. If it is hereafter determined that the transaction is subject to the requirements of the HSR Act, Parent and Adams Golf intend to take such action as may be required under the applicable statute or regulation, but no assurance can be given that any necessary approvals will be obtained.  Neither Parent nor Adams Golf will be obligated to complete the Merger until any required approvals have been obtained and any applicable waiting periods have expired.

The antitrust or merger control statutes or regulations of certain foreign countries in which Adams Golf and Parent operate may also require the filing of information with, or the obtaining of the approval of, antitrust or competition authorities therein. As of the date hereof, Parent and Adams Golf believe that no such statute or regulation is applicable.  If any such statutes or regulations are hereafter determined to be applicable, Parent and Adams Golf intend to take such action as they may require, but no assurance can be given that any necessary approvals will be obtained. Neither Parent nor Adams Golf will be obligated to complete the Merger until any required approvals or exemptions have been obtained or any applicable waiting periods have expired.

Litigation Relating to the Merger (Page 32)

In connection with the Merger, four putative stockholder class action lawsuits have been filed in the Court of Chancery of the State of Delaware, asserting that the members of the Board of Directors breached their fiduciary duties by, among other things, failing to maximize stockholder value in the Merger and depriving the stockholders from participating in the Company’s long-term prospects, and further asserting that the Company, Parent and Merger Sub aided and abetted those alleged breaches of fiduciary duties.  The Company, Parent and Merger Sub believe that the lawsuits are without merit and intend to defend them vigorously.

Material Accounting Treatment (Page 30)

The Merger will be accounted for as a purchase under generally accepted accounting principles. The purchase price will be assigned to the fair value of the net tangible and intangible assets acquired, with any amounts in excess thereof being assigned to goodwill.  Goodwill will be capitalized unless and until it is deemed to be impaired, in which case the impairment will be measured and any such amount will be charged against current earnings.

Material U.S. Federal Income Tax Consequences of the Merger to Our Stockholders (Page 30)
 
The exchange of shares of Common Stock for cash pursuant to the Merger Agreement generally will be a taxable transaction for U.S. federal income tax purposes. U.S. persons that exchange their shares of Common Stock in the Merger will recognize gain or loss in an amount equal to the difference, if any, between the cash received in the Merger and their adjusted tax basis in their shares of Common Stock surrendered.  Because individual circumstances may differ, we urge you to consult your tax advisor for a complete analysis of the effect of the Merger on your U.S. federal, state and local and non-U.S. taxes.
 
 
Conditions of the Merger (Page 42)
 
 A number of conditions must be satisfied or waived before the Merger can be completed, including the following conditions:

 
5

 
·  
adoption of the Merger Agreement by the affirmative vote a majority of the shares of outstanding Common Stock entitled to vote thereon;
 
·  
if required, the waiting period (including any extension thereof) applicable to the consummation of the Merger under the HSR Act shall have expired or been terminated and all other material filings with or material permits, authorizations, consents and approvals of or expirations of waiting periods imposed by any governmental entity required to consummate the Merger shall have been obtained or filed or shall have occurred;
 
·  
accuracy as of March 18, 2012 and as of the closing of the Merger of the representations and warranties made by each of the parties in the Merger Agreement to the extent specified therein;
 
·  
performance of or compliance with the pre-closing covenants and agreements by each of the parties to the Merger Agreement to the extent specified therein; and
 
·  
absence of certain events, circumstances, changes, occurrences, states of fact or effects prior to the Effective Time that have had or would reasonably be expected, individually or in the aggregate, to have a material adverse effect on the Company.
 
Neither Parent nor the Company can offer any assurance that all of the conditions will be satisfied or waived or that the Merger will occur, or if it occurs, as to its timing.
 
 Termination of the Merger Agreement and Termination Fees (Page 43)
 
The Merger Agreement may be terminated by the mutual written consent of the Company, Parent and Merger Sub, or under certain specified circumstances by either the Company or Parent. Upon termination of the Merger Agreement under certain specified circumstances, we may be required to pay a termination fee of approximately $3,546,172 to Parent, representing 4% of the aggregate consideration to be paid to stockholders and optionholders pursuant to the Merger.
 
 Restrictions on Solicitations of Other Offers and Adverse Recommendation Changes (Page 38)
 
The Merger Agreement restricts our ability to solicit, initiate, facilitate, propose or enter into or engage in discussions or negotiations with third parties regarding a proposal to acquire a significant interest in us or a substantial portion of our assets, including a substantial subsidiary. However, under certain circumstances, if we receive a bona fide unsolicited written Acquisition Proposal (as defined in the section entitled “The Merger Agreement—No Solicitation; Board Recommendation” beginning on page 38) from a third party that our Board of Directors determines in good faith (after consultation with outside counsel and financial advisors) constitutes a Superior Proposal (as defined in the section entitled “The Merger Agreement—No Solicitation; Board Recommendation” beginning on page 38) or would reasonably be expected to lead to a Superior Proposal, we may furnish information to that third party and engage in negotiations regarding an Acquisition Proposal with that third party, subject to specified conditions and the ability of Parent to match any such Superior Proposal as described more fully in the Merger Agreement.
 
Appraisal Rights (Page 49)
 
Under Section 262 of the Delaware General Corporation Law (the “DGCL”), holders of Common Stock who do not vote in favor of the proposal to adopt the Merger Agreement will have the right to seek appraisal of the “fair value” of their shares of Common Stock as determined by the Delaware Court of Chancery if the Merger is completed, but only if they comply with all requirements of the DGCL, which are summarized in this proxy statement. The judicially determined appraisal amount could be more than, the same as or less than the merger consideration. Any holder of Common Stock intending to exercise appraisal rights, among other things, must submit a written demand for an appraisal to us prior to the vote on the proposal to adopt the Merger Agreement, must not vote in favor of adoption of the Merger Agreement and must otherwise strictly comply with all of the procedures required by the DGCL. Your failure to follow exactly the procedures specified under the DGCL will result in the loss of your appraisal rights. A copy of Section 262 of the DGCL is attached hereto as Annex E.
 
Market Price of Common Stock (Page 46)
 
Our Common Stock is listed on the NASDAQ Capital Market under the trading symbol “ADGF.” The closing sale price of Common Stock on the NASDAQ Capital Market on March 16, 2012, the last trading day prior to the execution of the Merger Agreement was $9.86. The $10.80 per share to be paid for each share of Common Stock in the Merger represents:
 
·  
a premium of approximately 10% to the closing share price on March 16, 2012;
 
·  
a premium of approximately 38% to the average closing share price for the one-month period ending March 16, 2012;
 
·  
a premium of approximately 76% to the average closing share price for the three-month period ending March 16, 2012; 

 
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·  
a premium of approximately 71% to the closing share price on the last full trading day prior to Adams Golf's announcement that it was examining strategic alternatives on January 4, 2012; and
 
·  
a premium of approximately 107% to the average closing share price for the one-year period ending March 16, 2012.
 
The closing sale price of Common Stock on the NASDAQ Capital Market on [  ], 2012, the last trading day before the filing of this proxy statement, was $[  ].

 
7

 
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

References to “Adams Golf,” the “Company,” “we,” “our” or “us” in this proxy statement refer to Adams Golf, Inc. and its subsidiaries unless otherwise indicated by context.

The following questions and answers are intended to address briefly some commonly asked questions regarding the Agreement and Plan of Merger (the “Merger Agreement”), dated as of March 18, 2012, by and among Taylor Made Golf Company, Inc., a Delaware corporation (“Parent”), Apple Tree Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”), and the Company; the merger of Merger Sub with and into the Company, pursuant to the Merger Agreement (the “Merger”); and the special meeting. These questions and answers may not address all questions that may be important to you as an Adams Golf stockholder. Please refer to the “Summary” and the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to or incorporated by reference in this proxy statement, which you should read carefully. See “Where You Can Find More Information” beginning on page 52.

Q.           What is the proposed transaction?

A.
The proposed transaction is the acquisition of Adams Golf by Parent pursuant to the Merger Agreement. After the Merger Agreement has been adopted by the stockholders and other closing conditions under the Merger Agreement have been satisfied or waived, at the effective time of the merger (the “Effective Time”), Merger Sub, a wholly-owned subsidiary of Parent, will merge with and into Adams Golf. Adams Golf will be the surviving corporation and a wholly-owned subsidiary of Parent following the Effective Time.

Q.           What will I receive in the Merger?

A.
Upon completion of the Merger, you will be entitled to receive $10.80 in cash, without interest and less any applicable withholding taxes, for each share of Adams Golf common stock, par value $0.001 per share (the “Common Stock”) that you own immediately prior to completion of the Merger, unless you have properly and validly perfected your statutory rights of appraisal with respect to the Merger. For example, if you own 100 shares of Common Stock, you will receive $1080.00 in cash in exchange for your shares of Common Stock, without interest and less any applicable withholding taxes. After the Merger, you will not own any shares in Adams Golf, the surviving corporation or Parent whether or not you vote in favor of the Merger.

Q.           When and where is the special meeting?

A.
The special meeting of stockholders of Adams Golf will be held on [  ], 2012 at 9:00 a.m. local time, at 2801 E. Plano Parkway, Plano, Texas 75074.

Q.           What vote of our stockholders is required to approve the proposal to adopt the Merger Agreement?

A.
The affirmative vote of a majority of the shares of Common Stock outstanding and entitled to vote at the special meeting is required to approve the proposal to adopt the Merger Agreement. Accordingly, failure to vote in person or by proxy or an abstention will have the same effect as a vote against the Merger Agreement.

Q.
What vote of our stockholders is required to approve the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies?

A.
Approval of the proposal to adjourn the special meeting, if necessary or appropriate, for the purpose of soliciting additional proxies requires the affirmative vote of a majority of the votes cast by the holders of all Common Stock present in person or represented by proxy at the special meeting and entitled to vote on the matter.

Q.           Have any stockholders already agreed to vote in favor of the transactions?

A.
Yes. All of our directors, including our Interim Chief Executive Officer, Barney Adams, and SJ Strategic Investments, LLC, an affiliate of our director, Mr. John M. Gregory (“SJ Strategic”), have entered into voting agreements with Parent. The voting agreements provide, among other things, that these Adams Golf stockholders have irrevocably agreed, on the terms and subject to the conditions specified in the voting agreements, to vote all shares of Common Stock owned by such stockholders in favor of the adoption of the Merger Agreement and any other proposal related to the Merger and against competing proposals and any action or agreement that would be expected to materially impair the ability of Adams Golf to complete the Merger. Such stockholders have also granted Parent an irrevocable proxy with respect to such shares of Common Stock. A form of voting agreement entered into by these stockholders is included as Annexes B and C hereto. As of March 16, 2012, the last trading day before announcement of the Merger, these stockholders held an aggregate of

 
8

 
 
approximately 2,718,937 shares of Common Stock (representing approximately 34% of the outstanding shares of Common Stock as of March 16, 2012 and as of the record date) plus approximately 75,000 unvested Restricted Stock Shares and shares subject to unexercised options to purchase Common Stock. Pursuant to such voting agreements, if such stockholders acquire beneficial or record ownership of any additional shares of Common Stock, such shares will also be subject to such voting agreements. However, such shares of Common Stock subject to such voting agreements will be reduced, as provided for in such voting agreements, to equal 30% of the outstanding shares of Common Stock if the board of directors makes an Adverse Recommendation Change following an Intervening Event (each, as defined in the Merger Agreement, see “The Merger Agreement—No Solicitation; Board Recommendation” on page 38) in compliance with the Merger Agreement.

Q.           How does Adams Golf’s Board of Directors recommend that I vote?

A.
The board of directors of the Company (the “Board of Directors” or the “Board”) unanimously recommends that you vote “FOR” the proposal to adopt the Merger Agreement and “FOR” the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the Merger Agreement. You should read “The Merger — Reasons for the Merger; Recommendation of the Board of Directors” beginning on page 19 for a discussion of the factors that the Board of Directors considered in deciding to recommend the adoption of the Merger Agreement.

Q.
What effects will the proposed Merger have on Adams Golf?

A.
If the proposed Merger occurs, after the Effective Time, Adams Golf will cease to be a publicly-traded company and will be wholly-owned by Parent. After the Effective Time, you will no longer have any interest in our future earnings or growth and you will no longer be a stockholder of Adams Golf. Following consummation of the Merger, the registration of the Common Stock and our reporting obligations with respect to the Common Stock under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), will be terminated upon application to the Securities and Exchange Commission (the “SEC”). In addition, upon completion of the proposed Merger, our Common Stock will no longer be listed on any stock exchange or quotation system, including the NASDAQ Capital Market.

Q.
What happens if the Merger is not consummated?

A.
If the proposal to adopt the Merger Agreement is not approved by the stockholders or if the Merger is not completed for any other reason, the Merger will not occur and the Adams Golf stockholders will not receive any payment for their shares. Instead, Adams Golf will remain an independent public company and the Common Stock will continue to be listed and traded on the NASDAQ Capital Market. Under specified circumstances, Adams Golf may be required to pay a fee to Parent in the event the Merger Agreement is terminated as described under the caption “The Merger Agreement — Termination Fees” beginning on page 43.  You should also read “The Merger — Reasons for the Merger; Recommendation of the Board of Directors” beginning on page 19 for a discussion of the factors that the Board of Directors considered in deciding to recommend the adoption of the Merger Agreement.

Q.
What do I need to do now?

A.
We urge you to read the proxy statement carefully, including the annexes and the other documents referred to or incorporated by reference herein, and to consider how the Merger affects you.  If you are a stockholder of record, you can ensure your shares of Common Stock are voted at the special meeting by completing, signing, dating and mailing the enclosed proxy card. Even if you plan to attend the special meeting, we encourage you to return the enclosed proxy card. If you hold your shares in “street” name, you can ensure that your shares are voted at the special meeting by instructing your broker or nominee how to vote, as discussed below. Do NOT return your stock certificate(s) with your proxy.

Q.
How do I cast my vote?

A.
You may vote:
 
·  
Via Proxy: By marking, signing and dating each proxy card you receive and returning it in the enclosed prepaid envelope;
·  
Via Ballot: By attending the special meeting and casting a ballot in accordance with the instructions provided at the meeting; or
·  
If you hold your shares in “street name,” by following the procedures provided by your broker, bank or other nominee.

If you return your signed proxy card, but do not mark the boxes showing how you wish to vote, your shares will be voted “FOR” the proposal to adopt the Merger Agreement and “FOR” the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies.

 
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Q.    If my shares are held in “street name” by my broker, bank or other nominee, will my broker, bank or other nominee vote my shares for me?

A.  
Yes, but only if you instruct your broker, bank or other nominee how to vote. You should follow the procedures provided by your broker, bank or other nominee regarding the voting of your shares. If you do not instruct your broker, bank or other nominee to vote your shares, your shares will not be voted and the effect will be the same as a vote against the proposal to adopt the Merger Agreement, but will not have an effect on the proposal to adjourn the special meeting.
 
Q.  
How can I change or revoke my vote?

A.  
You have the right to change or revoke your proxy at any time before the vote taken at the special meeting.
  
· 
by notifying our Secretary, Pamela High, at Adams Golf, Inc., 2801 E. Plano Parkway, Plano, Texas 75074;
· 
by attending the special meeting and voting in person (your attendance at the special meeting will not, by itself, revoke your proxy; you must vote in person at the special meeting); or
· 
by submitting a later-dated proxy card.

If you have instructed a broker, bank or other nominee to vote your shares, the above instructions do not apply and instead you must follow the directions received from your broker, bank or other nominee to change those instructions.

Q.  
What do I do if I receive more than one proxy or set of voting instructions?

A.  
If your shares are registered differently or are in more than one account, you may receive more than one proxy and/or set of voting instructions relating to the special meeting. Each such proxy or set of voting instructions should be completed, signed and/or returned separately as described elsewhere in this proxy statement in order to ensure that all of your shares are voted.

Q.           What happens if I sell my shares before the special meeting or before the completion of the Merger?

A.  
The record date of the special meeting is [____________], 2012, which is prior to the special meeting and the date that the Merger is expected to be completed. If you transfer your shares of Common Stock after the record date but before the special meeting, you will retain your right to vote at the special meeting, but will have transferred the right to receive $10.80 per share in cash to be received by our stockholders in the Merger. In order to receive the merger consideration for your shares of Common Stock, you must hold your shares through completion of the Merger.

Q.  
Am I entitled to exercise appraisal rights instead of receiving the merger consideration for my shares?

A.  
Yes. As a holder of Common Stock, you are entitled to appraisal rights under the Delaware General Corporation Law (the “DGCL”) in connection with the Merger if you meet certain conditions. See “Rights of Appraisal” beginning on page 49.

Q.  
When is the Merger expected to be completed?

A.  
We are working toward completing the Merger as quickly as possible, and we anticipate that it will be completed around mid-year 2012. However, the exact timing of the completion of the Merger cannot be predicted. In order to complete the Merger, we must obtain stockholder approval, any required antitrust approvals (as of the date hereof, neither Parent nor we believe any such approvals or filings are required) and the other closing conditions under the Merger Agreement must be satisfied or waived (as permitted by law). See “The Merger Agreement — Closing and Effective Time” and “The Merger Agreement —Covenants and Agreements—Conditions of the Merger” beginning on pages 33 and 42, respectively.

Q:           Who will bear the cost of this solicitation?
 
A:
The expenses of preparing, printing and mailing this proxy statement and the proxies solicited hereby will be borne by us. Additional solicitation may be made by telephone, facsimile or other contact by certain of our directors, officers, employees or agents, none of whom will receive additional compensation for their solicitation efforts. Parent, directly or through one or more affiliates or representatives, may, at its own cost, also make additional solicitation by mail, telephone, facsimile or other contact in connection with the Merger.

Q.  
Will a proxy solicitor be used?

A.  
Yes. Adams Golf has engaged Georgeson Inc. (“Georgeson”) to assist in the solicitation of proxies for the special meeting, and Adams Golf estimates it will pay Georgeson a fee of approximately $9,000. Adams Golf has also agreed to reimburse Georgeson for reasonable administrative and out-of-pocket expenses incurred in connection with the proxy solicitation and indemnify Georgeson against certain losses, costs and expenses.

 
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Q.  
Should I send in my stock certificates now?

A.  
No. After the Merger is completed, a paying agent will send you a letter of transmittal with detailed written instructions for exchanging your shares of Common Stock (whether certificated or uncertificated) for the merger consideration. If your shares are held in “street name” by your broker, bank or other nominee, you will receive instructions from your broker, bank or other nominee as to how to effectuate the surrender of your “street name” shares in exchange for the merger consideration. Please do not send your certificates in now.

Q.           What are the U.S. federal income tax consequences of the Merger?

A.  
The receipt of cash by you in exchange for your shares of Common Stock pursuant to the Merger generally will be a taxable transaction for U.S. federal income tax purposes, and also generally will be a taxable transaction under applicable state, local and non-U.S. tax laws. If you are a U.S. person (as defined herein), you will recognize, for U.S. federal income tax purposes, gain or loss equal to the difference, if any, between the amount of cash received and your adjusted tax basis in the shares of Common Stock exchanged for cash pursuant to the Merger. Such gain or loss generally will be capital gain or loss. Capital gains recognized by an individual stockholder are eligible for preferential rates of U.S. federal income tax if the shares of Common Stock were held for more than one year. If the shares are held for one year or less, such capital gains recognized by an individual stockholder will be subject to tax at ordinary income tax rates. We recommend that you consult your own tax advisors as to the particular tax consequences to you of the Merger, including the effect of U.S. federal, state and local tax laws or non-U.S. laws. See “The Merger — Material U.S. Federal Income Tax Consequences of the Merger to Our Stockholders” beginning on page 30 for a more detailed description of the U.S. federal income tax consequences of the Merger.

Q.  
Who can help answer my other questions?

A.  
If you have additional questions about the Merger, need assistance in submitting your proxy or voting your shares of Common Stock or need additional copies of the proxy statement or the enclosed proxy card, please (1) mail your request to Adams Golf, Inc., 2801 E. Plano Parkway, Plano, Texas 75074, Attn: Investor Relations, (2) call our Investor Relations department at (972) 673-9000, or (3) call our proxy solicitor, Georgeson, at either 1.212.440.9800 or toll-free at 1.866.357.4029; banks and brokers, call 1.212.440.9800. If your broker holds your shares, you should call your broker for additional information.

 
11

 
CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
 
This proxy statement and the documents to which we refer you in this proxy statement include forward-looking statements based on estimates and assumptions. There are forward-looking statements throughout this proxy statement, including, without limitation, under the headings “Questions and Answers about the Special Meeting and the Merger,” “Summary,” “The Merger,” “Opinion of Morgan Stanley & Co. LLC,” and “Projected Financial Information” and in statements containing words such as “believes,” “estimates,” “anticipates,” “continues,” “contemplates,” “expects,” “may,” “will,” “could,” “should” or “would” or other similar words or phrases. These statements, which are based on information currently available to us, are not guarantees of future performance and may involve risks and uncertainties that could cause our actual growth, results of operations, performance and business prospects, and opportunities to materially differ from those expressed in, or implied by, these statements. These forward-looking statements speak only as of the date on which the statements were made and we expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statement included in this proxy statement or elsewhere. In addition to other factors and matters contained or incorporated in this document, these statements are subject to risks, uncertainties and other factors, including, among others:
 
·  
the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement that could require us to pay an approximately $3,546,172 termination fee;
 
·  
the outcome of any legal proceedings that have been or may be instituted against Adams Golf and others relating to the Merger Agreement;
 
·  
the timing of the completion of the Merger, including any regulatory or other conditions associated therewith;
 
·  
the inability to complete the Merger due to the failure to obtain stockholder approval or the failure to satisfy other conditions to consummation of the Merger;
 
·  
the failure of the Merger to close for any other reason;
 
·  
risks that the proposed transaction disrupts current plans and operations and the potential difficulties in employee retention as a result of the Merger;
 
·  
the effect of the announcement of the Merger on our business and customer relationships, operating results and business generally, including our ability to retain key employees;
 
·  
the ability to recognize the benefits of the Merger;
 
·  
the amount of the costs, fees, expenses and charges related to the Merger; and
 
·  
other risks detailed in our current filings with the SEC, including our most recent filings on Forms 8-K, 10-Q and 10-K, including but not limited to, the risks detailed in the sections entitled “Risk Factors.” See “Where You Can Find More Information” beginning on page 52.
 
Many of the factors that will determine our future results are beyond our ability to control or predict. In light of the significant uncertainties inherent in the forward-looking statements contained herein, readers should not place undue reliance on forward-looking statements, which reflect management’s views only as of the date hereof. We cannot guarantee any future results, levels of activity, performance or achievements. The statements made in this proxy statement represent our views as of the date of this proxy statement, and it should not be assumed that the statements made herein remain accurate as of any future date. Moreover, we assume no obligation to update forward-looking statements or update the reasons that actual results could differ materially from those anticipated in forward-looking statements, except as required by law.

 
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THE PARTIES TO THE MERGER
 
 
Adams Golf, Inc.
 
Adams Golf, Inc. designs, assembles, markets and distributes premium quality, technologically innovative golf clubs for all skill levels.  Recently launched products include the Speedline Fast 12 drivers, Fast 12 LS drivers and the Speedline Fast 12 fairway woods, along with the Idea a12 OS irons and hybrids, Idea a12 hybrids, Idea Pro a12 irons and hybrids, Idea Tech V3 irons and hybrids, Redline irons, Idea a7 and a7 OS irons and hybrids, and Speedline 9088 UL drivers.  Adams Golf also develops new products under the Yes! Putters, Women's Golf Unlimited, Lady Fairway and Square 2 brands.

Adams Golf was incorporated in 1987 and redomesticated in Delaware in 1990. Our corporate headquarters and principal executive offices are located at 2801 E. Plano Parkway, Plano, Texas 75074, and our telephone number is (972)673-9000.

For more information about Adams Golf, please visit our website at www.adamsgolf.com. Our website address is provided as an inactive textual reference only. The information provided on our website is not part of this proxy statement and therefore is not incorporated by reference. See also “Where You Can Find More Information” beginning on page 52. Our Common Stock is publicly-traded on the NASDAQ Capital Market under the symbol “ADGF.”
 
Parent
 
Taylor Made Golf Company, Inc., a Delaware corporation, is an affiliate of adidas AG.  Taylor Made Golf Company, Inc. sells golf clubs, balls, clothing and accessories under the TaylorMade, adidas Golf and Ashworth brands.  Parent’s principal executive offices are located at 5545 Fermi Court, Carlsbad, CA 92008, and its telephone number is (760) 918-6000.

The adidas Group is one of the global leaders within the sporting goods industry, offering a broad range of products around the core brands: adidas, Reebok, TaylorMade, Rockport and Reebok-CCM Hockey. The adidas Group has more than 46,000 employees.  The adidas Group’s principal executive offices are located at Olympiaring 2, 91074 Herzogenaurach, Germany and its telephone number is 09132 842000.
 
Merger Sub
 
Apple Tree Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of Parent, was formed solely for the purpose of consummating the Merger. Merger Sub has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the Merger Agreement.  Merger Sub’s principal executive offices are located at c/o Taylor Made Golf Company, Inc., 5545 Fermi Court, Carlsbad, CA 92008 and its telephone number is (760) 918-6000.
 
 
THE SPECIAL MEETING
 
 
Time, Place and Purpose of the Special Meeting
 
This proxy statement is being furnished to our stockholders as part of the solicitation of proxies by the Board of Directors for use at the special meeting to be held on [  ], 2012 at 9:00 a.m. local time, at 2801 E. Plano Parkway, Plano, Texas 75074, or at any adjournment or postponement thereof. The purpose of the special meeting is for our stockholders to consider and vote upon a proposal to adopt the Merger Agreement and to approve the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies. Our stockholders must adopt the Merger Agreement in order for the Merger to occur. If the stockholders do not adopt the Merger Agreement or if the other closing conditions set forth in the Merger Agreement are not satisfied or waived, the Merger will not occur. A copy of the Merger Agreement is attached to this proxy statement as Annex A. This proxy statement and the enclosed form of proxy are first being mailed to our stockholders on or about [  ], 2012.
 
Record Date and Quorum
 
We have fixed the close of business on [  ], 2012 as the record date for the special meeting, and only holders of record of Common Stock on the record date are entitled to receive notice of and vote at the special meeting. As of the close of business on the record date, there were [7,995,511] shares of Common Stock, including [381,365] unvested shares of restricted Common Stock (“Restricted Stock Shares”), outstanding and entitled to vote. Each share of Common Stock entitles its holder to one vote on all matters properly coming before the special meeting.
 
The holders of a majority of the shares of Common Stock entitled to vote at the special meeting, present in person or represented by a duly authorized and properly completed proxy, constitutes a quorum for the purpose of considering the proposals. Shares of

 
13

 
Common Stock represented at the special meeting but not voted, including shares of Common Stock for which proxies have been received but for which stockholders have abstained, will be treated as present at the special meeting for purposes of determining the presence or absence of a quorum for the transaction of all business. Although the law in Delaware is unclear on the proper treatment of abstentions, we believe that abstentions should be counted for purposes of determining whether a quorum is present. Without controlling precedent to the contrary, we intend to treat abstentions in this manner. Accordingly, abstentions will be counted for the purpose of determining whether a quorum is present. In connection with the special meeting, because only non-routine voting matters are on the ballot, there will be no broker non-votes, and such uninstructed shares will not be deemed present for quorum or voting purposes. In the event that a quorum is not present at the special meeting, it is expected that the special meeting will be adjourned to solicit additional proxies.  If a quorum is not present, the holders of a majority of the shares present in person or represented by proxy and entitled to vote may adjourn the meeting.
 
Vote Required for Approval
 
Approval of the proposal to adopt the Merger Agreement requires the affirmative vote of a majority of shares of Common Stock outstanding that are entitled to vote at the special meeting. Approval of the proposal to adjourn the special meeting, if necessary or appropriate, for the purpose of soliciting additional proxies requires the affirmative vote of a majority of the votes cast by the holders of all Common Stock present in person or represented by proxy at the special meeting and entitled to vote on the matter. If you do not return a signed proxy card by mail or vote your shares in person or if you “ABSTAIN” from voting on your proxy card or ballot, it will have the same effect as a vote against the proposal to adopt the Merger Agreement but it will have no effect on the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies. If you sign your proxy card without indicating your vote, your shares will be voted “FOR” the proposal to adopt the Merger Agreement and “FOR” the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies.
 
If your shares of Common Stock are held in street name, you will receive instructions from your broker, bank or other nominee that you must follow in order to have your shares voted. If you do not instruct your broker to vote your shares, it will have the same effect as a vote against the proposal to adopt the Merger Agreement. As of the close of business on the record date, the directors and executive officers of Adams Golf held and are entitled to vote, in the aggregate, 2,835,965 shares of Common Stock (including 88,750 unvested Restricted Stock Shares), representing approximately 35% of the outstanding Common Stock.

Voting Agreements

As a condition to their willingness to enter into the Merger Agreement, Parent and Merger Sub required that John M. Gregory, SJ Strategic Investments LLC, an affiliate of John M. Gregory (“SJ Strategic”), Joseph R. Gregory, B.H. (Barney) Adams, Russell L. Fleischer, Mark R. Mulvoy, and Robert D. Rogers (collectively, the “Locked-up Stockholders”), acting solely in their capacities as stockholders of Adams Golf, enter into substantially identical voting agreements (the “Voting Agreements”) with Parent. As of [    ], the record date for the special meeting, the Locked-up Stockholders held and are entitled to vote, in the aggregate, 2,718,937 of outstanding shares of Common Stock (plus a total of 75,000 unvested Restricted Stock Shares and shares issuable upon the exercise of options to purchase Common Stock , the “Voting Agreement Shares”) which represented approximately [34]% of our Common Stock outstanding. Pursuant to the Voting Agreements, if the Locked-up Stockholders acquire beneficial or record ownership of any additional shares of Common Stock, such shares will also be subject to the Voting Agreements. However, the Voting Agreement Shares will be reduced to equal 30% of the outstanding shares of Common Stock if the Board of Directors makes an Adverse Recommendation Change following an Intervening Event (each as defined in the section entitled “The Merger Agreement—No Solicitation; Board Recommendation” beginning on page 38).

Pursuant to the Voting Agreements, each Locked-up Stockholder agreed to, among other things, vote the Voting Agreement Shares owned by such Locked-up Stockholder “FOR” the approval of the Merger Agreement and any other proposal in favor of the Merger and against any other competing business combination proposals.  Each Locked-up Stockholder also granted an irrevocable proxy to Parent with respect to the Voting Agreement Shares pursuant to the Voting Agreements.

Proxies and Revocation
 
If you submit a proxy by returning a signed proxy card by mail, your shares will be voted at the special meeting as you direct on your proxy card or by such other method. If you sign your proxy card without expressing your vote, your shares will be voted “FOR” the proposal to adopt the Merger Agreement and “FOR” the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies.
 
Proxies received at any time before the special meeting and not revoked or superseded before being voted will be voted at the special meeting. You have the right to change or revoke your proxy at any time before the vote taken at the special meeting:
 
·  
by notifying our Secretary, Pamela High, at Adams Golf, Inc., 2801 E. Plano Parkway, Plano, Texas 75074;

 
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·  
by attending the special meeting and voting in person (your attendance at the special meeting will not, by itself, revoke your proxy; you must vote in person at the special meeting); or
 
·  
by submitting a later-dated proxy card.
  
If you hold your shares through a broker, bank or other nominee and you have instructed a broker, bank or other nominee to vote your shares of Common Stock, the above instructions do not apply and, instead, you must follow the directions received from your broker, bank or other nominee to change those instructions.
 
Please do not send in your stock certificates with your proxy card.   When the Merger is completed, a paying agent will mail to you a separate letter of transmittal that will enable you to receive the merger consideration in exchange for your shares of Common Stock (whether held in certificated or uncertificated form).
 
Adjournments and Postponements
 
Although it is not currently expected, the special meeting may be adjourned or postponed for the purpose of soliciting additional proxies if Adams Golf has not received sufficient votes to approve the Merger Agreement proposal at the special meeting. Any adjournments may be made without notice (if such adjournment is not for more than thirty (30) days and no new record date is fixed for the adjourned meeting), other than an announcement at the special meeting, by approval of the affirmative vote of a majority of the votes cast by the holders of all Common Stock present in person or represented by proxy at the special meeting and entitled to vote thereon. Any signed proxies received by Adams Golf in which no voting instructions are provided on such matter will be voted “FOR” the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies. Any adjournment of the special meeting for the purpose of soliciting additional proxies will allow Adams Golf’s stockholders who have already sent in their proxies to revoke them at any time prior to their use at the special meeting as adjourned.
 
At any time prior to convening the special meeting, our Board of Directors may postpone the special meeting for any reason without the approval of Adams Golf stockholders. If postponed, Adams Golf will provide notice of the new meeting date as required by law. Although it is not currently expected, the Board of Directors may postpone the special meeting for the purpose of soliciting additional proxies if Adams Golf has not received sufficient proxies to constitute a quorum or sufficient votes for adoption of the Merger Agreement. Similar to adjournments, any postponement of the special meeting for the purpose of soliciting additional proxies will allow stockholders who have already sent in their proxies to revoke them at any time prior to their use.
 
Appraisal Rights of Stockholders
 
Stockholders are entitled to statutory appraisal rights under Section 262 of the DGCL in connection with the Merger. This means that you are entitled to have the “fair value” of your shares determined by the Delaware Court of Chancery and to receive payment in cash for your shares at that value. The ultimate amount you receive in an appraisal proceeding may be more than, the same as or less than the amount you would have received under the Merger Agreement.
 
To exercise your appraisal rights, you must submit a written demand for appraisal to Adams Golf before the vote is taken on the Merger Agreement and you must not vote in favor of the proposal to adopt the Merger Agreement. Your failure to follow exactly the procedures specified under the DGCL will result in the loss of your appraisal rights. See “Rights of Appraisal” beginning on page 49 and the text of the Delaware appraisal rights statute reproduced in its entirety as Annex E.
 
Solicitation of Proxies
 
This proxy solicitation is being made and paid for by Adams Golf on behalf of its Board of Directors. Parent, directly or through one or more affiliates or representatives, may, at its own cost, also make additional solicitation by mail, telephone, facsimile or other contact in connection with the Merger. In addition, we have retained Georgeson Inc. (“Georgeson”) to assist in the solicitation. We will pay Georgeson approximately $9,000 plus reasonable out-of-pocket expenses for their assistance. Our directors, officers and employees may also solicit proxies by personal interview, mail, electronic mail, telephone, facsimile or other means of communication. These persons will not be paid additional or special remuneration for their efforts. We will also request brokers and other fiduciaries to forward proxy solicitation material to the beneficial owners of shares of Common Stock that the brokers and fiduciaries hold of record and obtain such holders’ voting instructions. Upon request, we will reimburse such brokers and fiduciaries for their reasonable out-of-pocket expenses. In addition, we will indemnify Georgeson against any losses arising out of that firm’s proxy soliciting services on our behalf.
 
Questions and Additional Information
 
 
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If you have more questions about the Merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please (1) mail your request to Adams Golf, Inc., 2801 E. Plano Parkway, Plano, Texas 75074, Attn: Investor Relations, (2) call our Investor Relations department at (972) 673-9000, or (3) call our proxy solicitor, Georgeson, toll free at 1.866.357.4029 or at 1.212.440.9800; banks and brokers call 1.212.440.9800.
 
Availability of Documents
 
The reports, opinions or appraisals referenced in this proxy statement will be made available for inspection and copying at the principal executive offices of Adams Golf during its regular business hours by any interested holder of Common Stock.

 
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THE MERGER
 

This discussion of the Merger is qualified in its entirety by reference to the Merger Agreement, which is attached to this proxy statement as Annex A. You should read the entire Merger Agreement carefully as it is the legal document that governs the Merger.
 
Background of the Merger

From time to time, the Board has periodically met with senior management and legal and financial advisors of the Company to review and discuss potential strategic directions for the Company in light of the Company’s financial and operating performance, developments in the industry and the competitive landscape in the markets in which it operates. Certain of these meetings have also addressed hypothetical acquisitions or business combinations involving various other parties.

On November 17, 2011, Messrs. John M. Gregory, Joseph R. Gregory and SJ Strategic together with Mr. Roland E. Casati and certain other reporting persons notified the Company, through the filing of an amendment to the Schedule 13D of Messrs. John M. Gregory, Joseph R. Gregory and SJ Strategic, that the reporting persons had entered into a voting agreement and intended to vote their shares together at the next annual meeting of the Company’s stockholders in favor of director nominees to be named subsequently.  Thereafter, all members of the Board engaged in informal meetings in person and telephonically amongst various directors to discuss the strategic direction of the Company in light of the actions contemplated by Messrs. John M. Gregory, Joseph R. Gregory, SJ Strategic, Mr. Casati and the remainder of the reporting group.  Members of management also engaged a proxy solicitation service to review the stockholder base and provide an analysis to the Company.

During late November 2011 and concurrently with the Board discussions above, management and members of the Board met with and interviewed multiple investment banks in order to recommend to the Board the appropriate investment bank to advise the Company on its strategic alternatives.

On December 5, 2011, the Board of Directors held a special meeting to discuss the current and future strategy of the Company.  After considering management’s review and discussion with respect to the investment banks with which management had met and management’s recommendation that the Board hire Morgan Stanley & Co LLC (“Morgan Stanley”), the Board authorized Morgan Stanley to begin work advising the Board on strategic alternatives that the Company should consider and to conduct a review of such strategic alternatives.  At the same meeting, the Board formed a special committee, comprised of Messrs. Adams, Rogers and Brewer, to work directly with Morgan Stanley and management in analyzing and considering the strategic alternatives for the Company.
 
On December 21, 2011, the special committee convened a telephonic meeting during which Morgan Stanley presented its review of potential strategic alternatives for the Company's consideration.  Topics addressed included the historical and recent performance of the Company’s stock and considerations surrounding various strategic alternatives, including but not limited to the institution of a regular or special dividend, a stock repurchase, a secondary equity offering, becoming a private company and a sale of the Company.
 
On December 27, 2011, the Board convened a special telephonic meeting to discuss such strategic alternatives, including but not limited to whether to further explore a potential sale, merger or other strategic business combination.  After deliberating, the Board authorized Morgan Stanley to begin a formal process to explore interest in such potential transactions; provided, that the Board and management were going to continue to explore other strategic alternatives related to remaining an independent company, including a stock repurchase or dividend program, while Morgan Stanley determined the potential value of such a potential sale, merger or other strategic business combination.  On January 4, 2012, the Company announced in a press release that it was formally exploring and evaluating strategic alternatives to enhance shareholder value and that it had engaged Morgan Stanley to assist in the evaluation of these alternatives. The press release also stated that the Company  intended to consider the full range of available options, that it had not made a decision to pursue any specific strategic alternative at that time, and that the exploration of strategic alternatives may not result in any specific action or transaction.
 
During January and February, 2012, Morgan Stanley actively examined the possible sale of the Company to strategic and private equity buyers.  Management continued to review and discuss all potential strategic alternatives, including a stock repurchase program and the potential value to stockholders of remaining independent.  Morgan Stanley approached over forty potential acquirors of the Company, several of whom, including adidas AG, entered into confidentiality and non-disclosure agreements with the Company and received non-public information regarding the Company. Morgan Stanley provided updates regarding these efforts to the Company’s management throughout this period.  adidas AG was the only party prepared to continue to the next stage of the process, and each of the other potential acquirors ultimately was not prepared to advance beyond this initial stage at such time.
 
On February 3, 2012, the Company held a management presentation in Richardson, Texas with representatives from adidas AG in attendance.  Following the presentation, on February 3, 2012, Morgan Stanley sent a letter to adidas AG, informing it of the process to submit a non-binding preliminary indication of interest in acquiring the Company in the format specified therein no later than February 17, 2012.  On February 17, 2012, adidas AG submitted such non-binding preliminary indication of interest in acquiring the Company for a proposed consideration of approximately $10.00 per share.
 
 
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The Board of Directors met again on February 16 and 21, 2012 to review updates from Morgan Stanley on possible strategic alternatives.  At the meeting on February 21, 2012, the Board formed a special committee (the “Strategic Alternatives Negotiation Committee”), consisting of Mr. Russell Fleischer, to work directly with Morgan Stanley and with Haynes and Boone, LLP, the Company’s outside counsel (“Haynes and Boone”) to negotiate with any potential bidders and to recommend a strategic alternative to the entire Board. At that time, the Board instructed Haynes and Boone to prepare a bid form of an Agreement and Plan of Merger.  Morgan Stanley continued to update the Board and management with respect to the other potential bidders contacted.
 
At a regular quarterly meeting of the Board on February 27, 2012, Morgan Stanley made a telephonic presentation to the Board regarding its efforts to explore strategic alternatives, including updates on the various potential bidders contacted and the level of interest from such parties.
 
On February 27, 2012, Morgan Stanley sent a letter to adidas AG informing it of the process to submit a formal bid to acquire the Company in the format specified therein no later than March 9, 2012.  On February 28, 2012, representatives of adidas AG were granted access to an online datasite established by the Company, providing additional non-public information regarding the Company.  On February 29, 2012, Morgan Stanley sent the Company’s bid form of Agreement and Plan of Merger to adidas AG.  During the next ten days, a series of due diligence meetings between the Company’s management, auditors, and attorneys and representatives of adidas AG were conducted at the Company’s headquarters in Plano, TX, at the offices of the Company’s auditors in Dallas, TX, and telephonically.
 
Mr. Oliver G. Brewer III, the Company’s then Chief Executive Officer and a member of the Board, resigned effective as of February 29, 2012.  In connection with Mr. Brewer’s resignation, the Board appointed the Chairman of the Board and founder of Adams Golf, Mr. B.H. Adams, as Interim Chief Executive Officer.  Mr. Adams previously served as the Company’s Chief Executive Officer from 1987 until January 2002, and President of the Company from 1987 until August 2000.
 
On March 9, 2012, adidas AG delivered a revised draft of the Agreement and Plan of Merger along with its final offer to the Company stating that, subject to the completion of certain specific outstanding diligence items, it was willing to acquire the Company for consideration of $10.80 per share.
 
The Board held a special telephonic meeting on March 11, 2012, at which Morgan Stanley gave a presentation on its efforts to explore strategic alternatives and the non-binding offer to purchase the Company by adidas AG.  The Board unanimously voted to negotiate a transaction with adidas AG and authorized Morgan Stanley and Haynes and Boone to negotiate definitive agreements with adidas AG on a non-exclusive basis.
 
Between March 11 and March 18, 2012, Haynes and Boone and the Strategic Alternatives Negotiation Committee negotiated a final Agreement and Plan of Merger with counsel for Parent, while Parent and its representatives continued confirmatory diligence of the Company.  Parent also negotiated the Voting Agreements with the individual Locked-up Stockholders.  On March 16, 2012, upon the recommendation of the Strategic Alternatives Negotiation Committee, Haynes and Boone sent the final draft of the Merger Agreement, subject to non-substantive changes, together with certain background materials and materials from Morgan Stanley regarding its fairness opinion and related analyses, for review and consideration in advance of the Board meeting to be held on March 18, 2012.

During this time, at the direction of the Strategic Alternatives Negotiation Committee negotiations were undertaken to seek revisions to the draft form of voting agreements proposed by Parent.  Such negotiations led to explicit concessions from Parent to exclude any shares owned by Roland E. Casati from the shares of Common Stock subject to the voting agreements of Messrs. John M. Gregory and Joseph Gregory and SJ Strategic and to provide for a reduction in the numbers of shares of Common Stock subject to all voting agreements from approximately 34% to 30% in the aggregate if the Board makes an Adverse Recommendation Change following an Intervening Event (each, as defined in the Merger Agreement, see “The Merger Agreement—No Solicitation; Board Recommendation” on page 38) in accordance with the Merger Agreement.

On March 18, 2012, the Board held a telephonic meeting to discuss the proposed transaction and to review the final draft of the Merger Agreement, during which the directors discussed in depth the potential benefits and drawbacks of the proposed transaction to the Company’s stockholders. Morgan Stanley gave a presentation reviewing the broad process of exploring strategic alternatives for the Company that it had conducted over the past three months, which included contacting over forty potential acquirors, consisting of potential strategic and private equity buyers, and potential financing sources.  Mr. Fleischer discussed the proposed transaction, noting that it was the Strategic Alternatives Negotiation Committee’s recommendation that the Board approve the Merger Agreement and the transaction. Morgan Stanley then summarized Morgan Stanley’s analysis of the proposed transaction consideration and rendered to the Board its oral opinion, subsequently confirmed in writing, that as of March 18, 2012, based upon and subject to the assumptions made, matters considered and qualifications and limitations set forth in its opinion, the merger consideration to be received by the holders of shares of Common Stock in the Merger pursuant to the Merger Agreement was fair to such holders from a financial point of view. The Board, with the assistance of Haynes and Boone, reviewed the material terms and conditions of the Merger Agreement, as reflected in the then current draft of the Merger Agreement, including certain contractual obligations, conditions and termination rights, and payment of a termination fee by the Company in certain specified circumstances. Following a thorough discussion, the Board

 
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unanimously determined that the Merger was advisable to, and in the best interests of, the Company and its stockholders, and approved and adopted the Merger and the Merger Agreement, resolved to recommend that the Company’s stockholders vote to adopt the Merger Agreement, and authorized its executive officers to execute and deliver the Merger Agreement.

On March 18, 2012, the parties executed and delivered the Merger Agreement, and on March 19, 2012, the parties announced the signing of the Merger Agreement.

Reasons for the Merger; Recommendation of the Board of Directors
 
In evaluating the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, the Board of Directors consulted with the Company’s senior management, legal counsel and financial advisors and, in recommending that the Company’s stockholders vote their shares of Common Stock in favor of the adoption of the Merger Agreement, considered the following factors, each of which the Board believed supported its recommendation:
 
·  
Assessment of Adams Golf’s Business.  Based on its knowledge and discussions with management regarding Adams Golf’s business, financial condition, results of operations, competitive position, business strategy, strategic options and prospects, as well as the risks involved in achieving these prospects, the nature of the Company’s business and the industry in which it competes, and current industry, economic and market conditions, both on a historical and on a prospective basis, Adams Golf’s Board of Directors believed that the Merger presented an opportunity for Adams Golf’s stockholders to realize greater value than the value likely to be realized by Adams Golf’s stockholders in the event Adams Golf remained independent or pursued other alternatives considered in the review process, particularly in light of increased competition from larger companies.
 
·  
Certainty of Value. The Board considered the form of consideration to be paid to the stockholders in the Merger and the certainty of the value of the cash consideration compared to the potential risks to the Company of continuing to operate as a going concern.  After conducting an extensive review of our results of operations and business prospects, management and the Board determined that continuing to operate independently was not reasonably likely to create greater value for our stockholders for the foreseeable future.
 
·  
Strategic Alternatives. The Board considered and discussed with the Company’s management and advisors several potential alternatives to the acquisition by Parent, including the possibility of continuing to operate the Company as an independent entity and combinations with other merger partners, the possibility of issuing additional equity or debt in a public or private offering the possibility of certain asset sales and the desirability and perceived risks of these and other alternatives, as well as the range of potential benefits to the Company’s stockholders of each of these alternatives. The Board’s belief, after a review of potential strategic alternatives and based on, among other things, the Company’s ability to execute its strategic plan, the potential for significant dilution to the stockholders in any equity offering, the uncertain debt and capital markets, the potential inability to fund the Company’s capital expenditures and the increased value offered to stockholders in the Merger was more favorable to the stockholders of the Company than the potential value that might have resulted from other strategic opportunities reasonably available to the Company, including remaining an independent company.
 
·  
Transaction Financial Terms. The Board considered the relationship of the merger consideration to the current and historical market prices of the Company’s Common Stock and the fact that the merger consideration was to be paid in cash, which would provide stockholders with the opportunity for liquidity and to receive a premium over the current and recent prices of the Common Stock. The Board reviewed historical market prices, volatility and trading information with respect to the Common Stock, including the fact that the merger consideration represented a premium of 80.3% over the average closing price per share of Common Stock on the NASDAQ Capital Market over the 30 days prior to  January 4, 2012 (which was the date we announced that we were examining strategic alternatives), 95.2% over the average closing price per share of Common Stock over the 90 days prior to January 4, 2012, 84.2% over the average closing price per share of Common Stock over the six months prior to January 4, 2012 and 79.0% over the average closing price per share of Common Stock for the one year prior to January 4, 2012.
 
·  
Process.  The Board considered that the Merger was agreed to only after a lengthy process pursuant to which a total of over 40 potential purchasers were contacted during the first phase of the process, which included the submission of five confidentiality and non-disclosure agreements, one indication of interest, and the submission of one final bid.
 
·  
Advice and Opinion of Morgan Stanley & Co. LLC. The Board considered the analysis of Morgan Stanley. In addition, the Board considered the opinion and financial presentation of Morgan Stanley, dated March 18, 2012, to the Board as to the fairness, from a financial point of view and as of the date of the opinion, of the merger consideration to be received in the Merger by holders of shares of Common Stock, as more fully described below in the section entitled “Opinion of the Adams Golf Financial Advisor.”
 
·  
Terms of the Merger Agreement. The Board considered the terms of the Merger Agreement, including the ability of Company, under certain circumstances specified in the Merger Agreement and prior to stockholder approval, to furnish information to and engage in discussions or negotiations with a third party that makes an unsolicited bona fide acquisition proposal.

 
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·  
Ability to Withdraw or Change Recommendation. The Board considered its ability under the Merger Agreement to withdraw or modify its recommendation in favor of the Merger under certain circumstances, including its ability to terminate the Merger Agreement in connection with a Superior Proposal or an Intervening Event (each as defined in the section entitled “The Merger Agreement—No Solicitation; Board Recommendation”), subject to payment of a termination fee of approximately $3,546,172, equal to 4% of the aggregate consideration to be paid to stockholders and optionholders pursuant to the Merger Agreement.
 
·  
Enforceability. The Board considered the Company’s right to specifically enforce the Merger Agreement in the event that the Merger is not effectuated due to the Parent’s or Merger Sub’s breach of or failure to perform its obligations under the terms of the Merger Agreement.
 
·  
Reasonableness of Termination Fee. The Board considered the termination fee payable by the Company to Parent in the event of certain termination events under the Merger Agreement and the Board of Directors’ determination that the termination fee of 4% of the aggregate consideration payable to stockholders and optionholders pursuant to the Merger Agreement is within the reasonable range of termination fees for transactions of this type.
 
·  
Availability of Appraisal Rights. The Board considered the availability of statutory appraisal rights in connection with the Merger to the Company’s stockholders who vote against the Merger and who otherwise comply with all the required procedures under the DGCL, which allows such stockholders to seek appraisal of the fair value of their shares of Common Stock as determined by the Delaware Court of Chancery in connection with the Merger.
 
·  
Uncertainty of Management Transition.  On February 29, 2012, the Company’s then Chief Executive Officer, Oliver G. Brewer III, resigned from all of his positions as a director and officer of the Company and its subsidiaries and went to work for the Company’s competitor, Callaway Golf Company, on March 5, 2012.  Mr. Adams was appointed Interim Chief Executive Officer on February 29, 2012.  However, it is unclear that the Company will be able to find a suitable permanent replacement Chief Executive Officer on terms and conditions satisfactory to Adams Golf, and if the Company can find such a replacement, what effect the transition and new Chief Executive Officer will have on the Company’s strategic plans and continued operations.
 
            The Board also considered and discussed a number of risks, uncertainties and other countervailing factors in its deliberations relating to entering into the Merger Agreement and the transactions contemplated thereby, including:
 
·  
Impact on the Company’s Stockholders. The Board considered the fact that, subsequent to the completion of the Merger, the Company would no longer exist as an independent public company and that the nature of the transaction as a cash transaction would prevent the Company’s stockholders from participating in future earnings or growth of the Company and from benefiting from any appreciation in value of the combined company.
 
·  
Operating Covenants. The Board considered the potential limitations on the Company’s pursuit of business opportunities due to pre-closing covenants in the Merger Agreement whereby the Company agreed that it will carry on its business in the ordinary course in substantially the same manner as previously conducted and, subject to specified exceptions, will not take a number of actions related to certain assets or the conduct of its business without the prior written consent of Parent.
 
·  
Taxable Consideration. The Board considered that the gains, if any, from the contemplated transactions generally would be taxable to the Company’s stockholders for federal income tax purposes.
 
·  
Effect of Public Announcement. The Board considered the effect of a public announcement of the Merger Agreement on the Company’s operations, stock price, customers and employees and its ability to attract and retain key management and employees.
 
·  
Termination Fee. The Board considered that the Company would have to pay a termination fee of approximately $3,546,172, equal to 4% of the aggregate consideration to be paid to stockholders and optionholders pursuant to the Merger Agreement, if it terminated the Merger Agreement in accordance with its terms in certain circumstances, including in order to enter into a Superior Proposal.
 
·  
Potential Conflicts of Interest. The Board was aware of the potential conflicts of interest between the Company, on the one hand, and certain of the Company’s executive officers and directors, on the other hand, as a result of the transactions contemplated by the Merger.
 
·  
Possible Disruption.  The Board considered the effect of disruption that may be caused by unexpected bidders or the failure to complete the Merger.
 
·  
Closing Conditions.  The Board considered that the Merger is subject to certain conditions to closing that are beyond the Company’s control.
 
·  
Sole Remedy.  The Board considered the fact that the Company’s sole and exclusive remedy for any damages it incurs in connection with the Merger Agreement, including any failure by Parent to close the Merger, would be the right to specifically enforce the Merger Agreement and it would not receive any termination fee.
 

 
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The Board believed that, overall, the potential benefits to the Company’s stockholders of entering into the Merger Agreement outweighed the contemplated risks and therefore would provide the maximum value to the Company’s stockholders.

The foregoing discussion summarizes the material factors considered by the Board of Directors in its consideration of the Merger. After considering these factors, as well as others, the Board of Directors concluded that the positive factors relating to the Merger Agreement and the Merger outweighed the potential negative factors. In view of the wide variety of factors considered by the Board of Directors and the complexity of these matters, the Board of Directors did not find it practicable to quantify or otherwise assign relative weights to the foregoing factors but conducted an overall analysis of the transaction. In addition, individual members of the Board of Directors may have assigned different weights to various factors. The Board of Directors unanimously approved and recommends the Merger Agreement and the Merger based upon the totality of the information presented to and considered by it.
 
The Board of Directors recommends that you vote “FOR” the proposal to adopt the Merger Agreement and “FOR” the proposal to adjourn or postpone the special meeting, if necessary or appropriate, to solicit additional proxies.
 
 Opinion of the Adams Golf Financial Advisor
 
The Board retained Morgan Stanley to (i) identify practical strategies designed to improve the performance of the Common Stock, (ii) identify potential counterparties and expected valuations for a possible merger, sale or other strategic business combination, and to provide the Company with financial advisory services in connection with such possible transaction, and (iii) identify and explain any other strategic recommendations that the Company should consider. The Company selected Morgan Stanley to act as its financial advisor based on Morgan Stanley’s qualifications, expertise and reputation.
 
If the Company determined to enter into a definitive agreement with respect to a sale of all or substantially all of the Company and under the terms of the engagement letter between the Company and Morgan Stanley, Morgan Stanley agreed to render, upon the Company’s request, a fairness opinion in accordance with Morgan Stanley’s customary practice with respect to the consideration to be received in a proposed sale, merger or other strategic business combination. At the meeting of the Board on March 18, 2012, Morgan Stanley rendered to the Board its oral opinion, subsequently confirmed in writing, that as of March 18, 2012, and based upon and subject to the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Morgan Stanley as set forth in such written opinion, the consideration of $10.80 per share to be received by the holders of the Common Stock pursuant to the Merger Agreement was fair from a financial point of view to such holders.
 
The full text of the written opinion of Morgan Stanley, dated as of March 18, 2012, is attached hereto as Annex D. Morgan Stanley’s opinion sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Morgan Stanley as set forth in such written opinion. The Company encourages you to read the opinion carefully and in its entirety.
 
Morgan Stanley’s opinion is directed to the Board and addresses only the fairness from a financial point of view to the holders of the Common Stock of the consideration to be paid pursuant to the Merger Agreement, as of the date of such opinion. It does not address any other aspects of the Merger, or in any manner address the prices at which the Common Stock will trade at any time, and does not constitute an opinion or a recommendation as to how any stockholders of the Company should vote at any stockholders’ meeting to be held in connection with the Merger. The summary of Morgan Stanley’s opinion set forth below is qualified in its entirety by reference to the full text of such opinion.
 
In connection with rendering its opinion, Morgan Stanley, among other things:
 
 
·  
 
reviewed certain publicly available financial statements and other business and financial information of the Company;
 
·  
 
reviewed certain internal financial statements and other financial and operating data concerning the Company;
 
·  
 
reviewed certain financial projections prepared by the management of the Company;
 
·  
 
discussed the past and current operations and financial condition and the prospects of the Company with senior executives of the Company;
 
·  
 
reviewed the reported prices and trading activity for the Common Stock;
 
·  
 
compared the financial performance of the Company and the prices and trading activity of the Common Stock with that of certain other publicly traded companies comparable with the Company and their securities;
 
·  
 
reviewed the financial terms, to the extent publicly available, of certain comparable acquisition transactions;
 
·  
 
participated in discussions and negotiations among representatives of the Company and Parent and their financial and legal advisors;
 
·  
 
reviewed the Merger Agreement and certain related documents; and
 
· 
 
performed such other analyses, reviewed such other information and considered such other factors as Morgan Stanley deemed appropriate.
 
In arriving at its opinion, Morgan Stanley assumed and relied upon, without independent verification, the accuracy and completeness of the information that was publicly available or supplied or otherwise made available to Morgan Stanley by the Company, and formed a substantial basis for Morgan Stanley’s opinion. With respect to the financial projections, Morgan Stanley assumed that they had been reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of the Company of the future financial performance of the Company. In addition, Morgan Stanley assumed that the

 
21

 
Merger would be consummated in accordance with the terms set forth in the Merger Agreement without any waiver, amendment or delay of any terms or conditions. Morgan Stanley assumed that in connection with the receipt of all the necessary governmental, regulatory or other approvals and consents required for the Merger, no delays, limitations, conditions or restrictions would be imposed that would have a material adverse effect on the contemplated benefits expected to be derived in the Merger. Morgan Stanley is not a legal, tax, regulatory or actuarial advisor. Morgan Stanley is a financial advisor only and relied upon, without independent verification, the assessment of the Company and its legal, tax, regulatory and actuarial advisors with respect to legal, tax, regulatory and actuarial matters. Morgan Stanley expressed no opinion with respect to the fairness of the amount or nature of the compensation to any of the Company’s officers, directors or employees, or any class of such persons, relative to the consideration to be received by the holders of the Common Stock pursuant to the Merger Agreement. Morgan Stanley did not make any independent valuation or appraisal of the assets or liabilities of the Company, nor was Morgan Stanley furnished with any such valuations or appraisals. Morgan Stanley’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to Morgan Stanley as of, March 18, 2012. Events occurring after March 18, 2012 may affect Morgan Stanley’s opinion and the assumptions used in preparing it, and Morgan Stanley did not assume any obligation to update, revise or reaffirm its opinion.
 
Summary of Financial Analyses
 
The following is a brief summary of the material analyses performed by Morgan Stanley in connection with its opinion dated March 18, 2012. Some of these summaries of financial analyses include information presented in tabular format. In order to fully understand the financial analyses used by Morgan Stanley, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Various analyses presented below were based on the closing price of the Common Stock of $6.31 per share as of January 4, 2012, the last full trading day prior to the public announcement that the Company intended to evaluate strategic alternatives, in order to compare the consideration received in the Merger to the performance of the Common Stock before it was affected by public anticipation of a possible sale, merger or other strategic business combination. Following the public announcement that the Company intended to evaluate strategic alternatives, on January 5, 2012 the price of the Common Stock increased by approximately 13% to $7.16 per share, and overall between January 4, 2012 and March 16, 2012 the price of the Common Stock increased by approximately 56% to $9.86 per share.
 
Historical Share Price Performance
 
Morgan Stanley reviewed the historical price performance of the Common Stock and compared various spot and average historical prices to the consideration of $10.80 per share.
 
Morgan Stanley observed that the closing price of the Common Stock was $6.31 on January 4, 2012, the last full trading day prior to the public announcement that the Company intended to evaluate strategic alternatives. Morgan Stanley noted that the implied premium of the consideration of $10.80 per share over the closing price per share on January 4, 2012 was 71.2%.
 
The following table presents average and high closing prices for the Common Stock over periods relative to the announcement by the Company of its intention to evaluate strategic alternatives on January 4, 2012, and the premiums implied by the consideration of $10.80 per share over such closing prices.
 

   
1 Day
Prior
   
30 Days
Average
   
90 Days
Average
   
6 Month
Average
   
12 Month
Average
   
LTM
High
   
High
Since 2000
 
Share Price
  $ 6.31     $ 5.99     $ 5.53     $ 5.86     $ 6.03     $ 7.88     $ 10.20  
Premium Implied by Consideration of $10.80 Per Share
    71.2 %     80.3 %     95.2 %     84.2 %     79.0 %     37.1 %     5.9 %
 
Relative Trading Performance. Morgan Stanley reviewed and analyzed historical ratios of aggregate value (defined as market capitalization, plus consolidated total debt, plus minority interests, if any, plus preferred stock outstanding, if any, and less consolidated total cash and cash equivalents) to earnings before interest, taxes and depreciation on a consolidated basis (“EBITDA”) for the Company and for certain other companies comparable with the Company over certain twelve-month periods (this ratio is referred to in this section as the “LTM EBITDA Multiple”). This analysis is designed to compare the historical aggregate value of the Company relative to the performance of its business to (i) that of other companies comparable with the Company and (ii) the consideration per share to be received by the holders of the Common Stock pursuant to the Merger Agreement.
 
Morgan Stanley observed that the Company has generally been valued at lower LTM EBITDA Multiples than its peers. Morgan Stanley observed that while the Common Stock had generally been valued at LTM EBITDA Multiples of between 5.0 and 7.0, the comparable companies were generally valued at LTM EBITDA Multiples of between 6.5 and 9.0.
 
Morgan Stanley noted that the implied LTM EBITDA Multiple of the consideration of $10.80 per share was 8.9.

 
22

 
Analysis of Precedent Transactions
 
 Morgan Stanley performed a precedent transactions analysis, which is designed to imply a value of a company based on publicly available financial terms of selected transactions that share some characteristics with the Merger. In connection with its analysis, Morgan Stanley compared publicly available statistics for selected transactions featuring public targets in the sporting goods equipment industry with total consideration of $350 million or less since 2000. The following is a list of the transactions reviewed:
 
Selected Transactions (Announcement Date: Target / Acquiror)
     
• September 2008
 
King’s Safetywear Ltd. / Safe Step Group Ltd.
   
• June 2007
 
Everlast Worldwide, Inc. / Brands Holdings Ltd.
   
• December 2006
 
Igloo Vikski Inc. / Lanctot Ltd.
   
• February 2005
 
Malcolm Group PLC / Malcolm of Brookfield (Holdings)
   
• April 2004
 
Hockey Co. Holdings Inc. / Reebok International Ltd.
   
• November 2003
 
Football USA Inc. / K2 Inc.
   
• April 2003
 
Varsity Brands Inc. / Investor Group
   
• December 2002
 
Rawlings Sporting Goods Co. / K2 Inc.
   
• April 2000
 
PlayCore Inc. / Chartwell Investments II LLC
 
Morgan Stanley reviewed the premiums paid for the transactions described above over (i) the closing price of the target company’s stock on the trading day prior to public announcement of the transaction and (ii) the closing price of the target company’s stock 30 days prior to public announcement of the transaction. This review indicated the following:
 
 
High
 
Low
 
Mean
 
Median
 
Premium to Price One Day Prior to Announcement
    49.6 %     8.8 %     30.0 %     29.4 %
Premium to 30-Day Average Price
    63.0 %     14.9 %     39.0 %     40.1 %
 
Morgan Stanley observed that the closing price of the Common Stock was $6.31 on January 4, 2012, the last full trading day prior to the public announcement that the Company intended to evaluate strategic alternatives. Morgan Stanley noted that the implied premium of the consideration of $10.80 per share over the closing price per share on January 4, 2012 was 71.2%, and that the implied premium of the consideration over the closing price per share 30 days prior to January 4, 2012 was 95.7%.
 
No company or transaction utilized in the precedent transactions analysis is identical to the Company or the Merger. In evaluating the precedent transactions, Morgan Stanley made judgments and assumptions with regard to industry performance, general business, market and financial conditions and other matters, which are beyond the control of the Company, such as the impact of competition on the business of the Company or the industry generally, industry growth and the absence of any adverse material change in the financial condition of the Company or the industry or in the financial markets in general, which could affect the public trading value of the companies and the aggregate value and equity value of the transactions to which they are being compared. Furthermore, Morgan Stanley based its analysis of the selected precedent transactions on the closing price of the relevant target company’s stock as of the trading days immediately prior to and 30 days prior to the public announcement of such relevant transaction. Morgan Stanley cannot be certain that the performance of such target company’s stock was not affected prior to such announcement by a public announcement that such target company was evaluating strategic alternatives or rumors to that effect. Mathematical analysis (such as determining the mean and median) is not in itself a meaningful method of using precedent transaction data.
 
Discounted Cash Flow Analysis
 
 Morgan Stanley calculated a range of implied equity values per share based on a discounted cash flow analysis. A discounted cash flow analysis is designed to provide an implied value of the present value of a company’s future cash flows. Morgan Stanley utilized the financial projections prepared by management of the Company in performing its discounted cash flow analysis (see “—Projected Financial Information” beginning on page 25). Morgan Stanley calculated the net present value of estimated free cash flows for the Company for 3.75-year and 4.75-year periods. These cash flows were discounted to present values at a series of exit multiples ranging from 5.0 to 7.0, based on the Company’s historical LTM EBITDA Multiples, and a series of discount rates ranging from 8.4%

 
23

 
to 10.4%, based on the Company’s weighted average cost of capital, which was determined by calculating the Company’s cost of equity using the capital asset pricing model.
 
Morgan Stanley observed that the range of implied present value per share suggested by a discount rate of 9.4% was approximately $10.35 to $14.58. Morgan Stanley noted that the consideration per share to be received by the holders of the Common Stock pursuant to the Merger Agreement is $10.80 per share.
 
General
 
 In connection with the review of the Merger by the Board, Morgan Stanley performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation of a financial opinion is a complex process and is not necessarily susceptible to a partial analysis or summary description. In arriving at its opinion, Morgan Stanley considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or factor it considered. Morgan Stanley believes that selecting any portion of its analyses, without considering all analyses as a whole, would create an incomplete view of the process underlying its analyses and opinion. In addition, Morgan Stanley may have given various analyses and factors more or less weight than other analyses and factors, and may have deemed various assumptions more or less probable than other assumptions. As a result, the ranges of valuations resulting from any particular analysis described above should not be taken to be Morgan Stanley’s view of the actual value of the Company. In performing its analyses, Morgan Stanley made numerous assumptions with respect to industry performance, general business and economic conditions and other matters. Many of these assumptions are beyond the control of the Company. Any estimates contained in Morgan Stanley’s analyses are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by such estimates.
 
Morgan Stanley conducted the analyses described above solely as part of its analysis of the fairness from a financial point of view, as of March 18, 2012, of the consideration to be received by the holders of the Common Stock pursuant to the Merger Agreement to such holders and in connection with the delivery of its opinion, dated March 18, 2012, to the Board. These analyses do not purport to be appraisals or to reflect the prices at which the Common Stock might actually trade.
 
The consideration to be received by the holders of the Common Stock was determined through arm’s length negotiations between the Company and Parent and was approved by the Board. Morgan Stanley provided advice to the Board during these negotiations. Morgan Stanley did not, however, recommend any specific consideration to the Company or the Board or that any specific consideration constituted the only appropriate consideration for the Merger.
 
Morgan Stanley’s opinion and its presentation to the Board was one of many factors taken into consideration by the Board in deciding to approve, adopt and authorize the Merger Agreement. Consequently, the Morgan Stanley analyses as described above should not be viewed as determinative of the opinion of the Board with respect to the consideration to be received by the holders of the Common Stock pursuant to the Merger Agreement, or of whether the Board would have been willing to agree to different consideration.
 
The Board retained Morgan Stanley based upon Morgan Stanley’s qualifications, experience and expertise. Morgan Stanley is an internationally recognized investment banking and advisory firm. Morgan Stanley is a global financial services firm engaged in the securities, investment management and individual wealth management businesses.  Morgan Stanley’s securities business is engaged in securities underwriting, trading and brokerage activities, foreign exchange, commodities and derivatives trading, prime brokerage, as well as providing investment banking, financing and financial advisory services.  Morgan Stanley, its affiliates, directors and officers may at any time invest on a principal basis or manage funds that invest, hold long or short positions, finance positions, and may trade or otherwise structure and effect transactions, for their own account or the accounts of its customers, in debt or equity securities or loans of the Company, Parent, adidas AG, or any other company, or any currency or commodity, that may be involved in the Merger, or any related derivative instrument.

Under the terms of its engagement letter, Morgan Stanley provided the Company financial advisory services and a financial opinion in connection with the Merger, and the Company has agreed to pay Morgan Stanley an aggregate fee of approximately $2,250,000, $250,000 of which was a non-refundable fee paid upfront and the remaining portion of which is contingent on consummation of the Merger up to 2.5% of the value of the transaction, plus a potential discretionary fee based upon the outcome achieved, determined at the sole discretion of the Company based on its assessment of Morgan Stanley’s contribution to the overall outcome of the transaction. The Company has not made a final determination as to whether it will pay any amount of such discretionary fee. In the three years prior to March 18, 2012, Morgan Stanley has provided financial advisory services to the Company, and has received fees in connection with such services. In the three years prior to March 18, 2012, Morgan Stanley has not provided financial advisory services to Parent, adidas AG or their affiliates. Morgan Stanley may seek to provide such services to Parent, adidas AG and the Company in the future and expects to receive fees for the rendering of these services. Morgan Stanley’s opinion was approved by a committee of Morgan Stanley investment banking and other professionals in accordance with its customary practice.

 
24

 
Projected Financial Information
 
We do not as a matter of course publicly disclose forecasts or internal projections as to future performance, revenues, earnings or financial condition. However, in the course of the sale process described under “—Background of the Merger,” we provided Parent, selected, non-public prospective financial information, which we refer to as the Projected Financial Information, prepared by management.  Such information was also made available to Morgan Stanley prior to the execution and delivery of the Merger Agreement. We have included the material portions of the Projected Financial Information below in order to give our stockholders access to this information as well. The prospective financial information included in the Projected Financial Information and set forth below was prepared for purposes of the Board of Directors’ consideration and evaluation of the Merger and to facilitate Morgan Stanley’s financial analyses in connection with the Merger. In addition, the prospective financial information included in the Projected Financial Information and set forth below was made available to Parent to facilitate the due diligence review by Parent and its advisors. The inclusion of the prospective financial information below should not be regarded as an indication that our management team, the Board of Directors, Morgan Stanley, or Parent considered, or now considers, any of the Projected Financial Information to be predictive of actual future results.

Our senior management team advised the Board of Directors, Morgan Stanley, and Parent that its internal financial forecasts, upon which the following prospective financial information was based, were subjective in many respects. The prospective financial information set forth below reflects numerous assumptions with respect to industry performance, general business, economic, geo-political, market and financial conditions and other matters, all of which are difficult to predict and beyond the Company’s control. The prospective financial information set forth below also reflects numerous estimates and assumptions related to our business that are inherently subject to significant economic, political and competitive uncertainties, all of which are difficult to predict and many of which are beyond the Company’s control. As a result, although the prospective financial information set forth below was prepared in good faith based on assumptions believed to be reasonable at the time the information was prepared, there can be no assurance that the assumptions made in preparing such information will prove accurate or that the projected results reflected therein will be realized.
 
The prospective financial information set forth below was not prepared with a view toward public disclosure. Accordingly, the prospective financial information set forth below was not prepared with a view toward complying with the published guidelines of the SEC regarding projections or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information or U.S. generally accepted accounting principles (“GAAP”), and some of the projections present financial metrics that were not prepared in accordance with GAAP. Neither the Company’s independent auditors nor any other independent accountants have compiled, examined or performed any procedures with respect to the prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the prospective financial information. The prospective financial information set forth below does not take into account any circumstances or events occurring since the date such information was prepared or which may occur in the future, and, in particular, does not take into account any revised prospects of our business, changes in general business, geo-political or economic conditions or any other transaction or event that has occurred since the date on which such information was prepared or which may occur in the future. The prospective financial information consists of forward-looking statements and is based on estimates and assumptions that are inherently subject to factors such as industry performance, general business, economic, regulatory, geo-political, market and financial conditions, as well as changes to the business, financial condition or results of operation of the Company, including the factors described under “Cautionary Note Concerning Forward-Looking Statements” beginning on page 12, that could cause actual results to differ materially from those shown below. Since the prospective financial information set forth below covers multiple years, such information by its nature is subject to greater uncertainty with each successive year. In addition, the projections do not take into account any of the transactions contemplated by the Merger Agreement, including the Merger, which might also cause actual results to differ materially.
 
We have made publicly available our actual results for the fiscal year ended December 31, 2011. You should review our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 to obtain this information. See “Where You Can Find More Information” beginning on page 52. You are cautioned not to place undue reliance on the specific portions of the prospective financial information set forth in the Projected Financial Information. No one has made or makes any representation to any stockholder regarding the information included in the prospective financial information set forth in the Projected Financial Information.
 
For the foregoing reasons, as well as the bases and assumptions on which the prospective financial information set forth in the Projected Financial Information was compiled, the inclusion of the prospective financial information in this proxy statement should not be regarded as an indication that such information will be predictive of actual future results or events, and it should not be relied on as such. Except as required by applicable securities laws, we have not updated nor do we intend to update or otherwise revise the prospective financial information set forth below, including, without limitation, to reflect circumstances existing after the date such information was prepared or to reflect the occurrence of future events, including, without limitation, changes in general economic, geo-political or industry conditions, even in the event that any or all of the assumptions underlying the prospective financial information is shown to be in error.

 
25

 
The Projected Financial Information included the following estimates of the Company’s future financial performance for fiscal years 2011 through 2016:
 
 
 
Fiscal Year Ending 12/31,
 
               2011E
               2012E
               2013E
               2014E
               2015E
               2016E
Adams Income Statement
           
Total Revenue
96.5
108.8
118.6
129.2
140.9
153.2
% growth
11.9%
12.8%
9.0%
9.0%
9.0%
8.8%
Cost of Goods Sold
(53.7)
(60.9)
(67.0)
(72.9)
(79.5)
(86.4)
% of sales
55.7%
56.0%
56.6%
56.4%
56.4%
56.4%
Gross Profit
42.8
47.9
51.5
56.3
61.4
66.8
% margin
44.3%
44.0%
43.5%
43.6%
43.6%
43.6%
Total Operating Expenses
(36.2)
(39.3)
(43.5)
(47.0)
(49.6)
(52.1)
% of sales
37.5%
36.7%
36.7%
36.4%
35.2%
34.0%
EBIT
6.5
8.6
8.0
9.3
11.9
14.7
% margin
7%
8%
7%
7%
8%
10%
Depreciation & Amortization
1.4
2.1
0.7
0.8
0.9
0.9
% of sales
1.4%
1.9%
0.6%
0.6%
0.6%
0.6%
EBITDA
7.9
10.6
8.8
10.1
12.7
15.6
% margin
8.2%
9.8%
7.4%
7.8%
9.0%
10.2%
% growth
8.6%
34.3%
(17.4%)
14.8%
26.1%
22.8%
Net Income
9.2
8.3
7.7
9.0
11.5
14.3
% margin
9.5%
7.6%
6.5%
6.9%
8.1%
9.3%
% growth
64.1%
(9.4%)
(6.7%)
15.7%
28.1%
24.2%
             
Adams Cash Flow Statement
           
  Fiscal Year Ending 12/31,
2011E
2012E
2013E
2014E
2015E
2016E
Cash from Operating
           
Net Income
9.2
8.3
7.7
9.0
11.5
14.3
D&A
1.4
2.1
0.7
0.8
0.9
0.9
(Increase) / Decrease in Working Capital
(2.4)
0.3
(3.0)
(3.7)
(4.1)
(4.5)
Cash Flow from Operating Activities
8.1
10.6
5.4
6.0
8.2
10.7
Cash from Investing
           
Capital Expenditure
(2.0)
(0.6)
(0.6)
(0.7)
(0.8)
(0.8)
Cash Flow from Investing Activities
(2.0)
(0.6)
(0.6)
(0.7)
(0.8)
(0.8)
Free Cash Flow
6.1
10.1
4.9
5.3
7.4
9.9

 
26

 
Financing of the Merger

The Merger Agreement does not contain any financing-related closing condition, and Parent has represented that it will have sufficient funds at the closing of the Merger to fund the payment of the merger consideration.

Interests of Adams Golf Directors and Executive Officers in the Merger
 
In considering the recommendation of the Board of Directors to vote “FOR” the proposal to adopt the Merger Agreement, Adams Golf’s stockholders should be aware that certain of Adams Golf’s directors and executive officers have interests in the transaction that are different from, or in addition to, the interests of Adams Golf’s stockholders generally. These interests may present them with actual or potential conflicts of interest, and these interests, to the extent material, are described below. The Board of Directors was aware of these potential conflicts of interest and considered them, among other matters, in reaching its decision to approve the Merger Agreement and the Merger and to recommend that our stockholders vote in favor of the proposal to adopt the Merger Agreement.

Mr. Fleischer, as the sole member of our Strategic Alternatives Negotiation Committee, was paid $25,000 in connection with his services in negotiating the Merger Agreement, as authorized and approved by the Board on February 27, 2012.
 
Treatment of Restricted Stock Shares; Cash Payable for Outstanding Shares Pursuant to the Merger
 
The Merger Agreement provides that each Restricted Stock Share granted by the Company, including awards with respect to which the restrictions have not lapsed that is outstanding as of the Effective Time, will have its forfeiture provisions lapse, or shall become fully vested, as the case may be, immediately prior to the Effective Time and the shares of Common Stock, as applicable, underlying such Restricted Stock Share will be treated in the same manner as the other outstanding shares of Common Stock in the Merger. Therefore, Company directors and executive officers who hold Restricted Stock Shares, including shares of Common Stock underlying their Restricted Stock Shares, will no longer be subject to forfeiture provisions or vesting requirements and will receive the same cash consideration with respect to such shares of Common Stock on the same terms and conditions as the other stockholders of the Company.
 
If the Company’s directors and executive officers own shares of Common Stock, they will receive the same cash consideration per share on the same terms and conditions as the other stockholders of the Company in the Merger. As of [ ______], 2012, the Company’s directors and executive officers beneficially owned in the aggregate 2,835,965 shares of Common Stock (excluding shares of Common Stock issuable upon the exercise of options to purchase Common Stock but including 88,750 shares of Common Stock underlying their Restricted Stock Shares).  As a result, the directors and executive officers holding such shares of Common Stock would be entitled to an aggregate cash amount equal to $30,628,422.
 
The following table sets forth, as of [ ______], 2012, the cash consideration that each director and executive officer would be entitled to receive for such person’s shares of Common Stock in the Merger (including shares of Common Stock underlying Restricted Stock Shares but excluding shares of Common Stock issuable upon the exercise of options to purchase Common Stock).
 
           
Director/Executive Officer
  
Number of Shares Owned Including Restricted Stock Shares
  
Aggregate Amount Payable for Shares
B.H. (Barney) Adams
 
456,976
 
4,935,340.80
Russell L. Fleischer
 
12,273
 
132,548.40
John M. Gregory
 
1,129,196
 
12,195,316.80
Joseph R. Gregory
 
1,131,946
 
12,225,016.80
Mark R. Mulvoy
 
12,523
 
135,248.40
Robert D. Rogers
 
13,523
 
146,048.40
Pamela High
 
79,528
 
858,902.40
 
Treatment of Options
 
Under the terms of the Merger Agreement, each outstanding stock option held by our employees (including our executive officers) and directors that is outstanding and unexercised as of immediately prior to the Effective Time (whether or not such stock option is vested and exercisable prior to the Effective Time) will have its vesting period accelerated in full and will be canceled and converted into the right to receive a cash payment equal to the number of shares underlying the option multiplied by the amount (if any) by which $10.80 exceeds the option exercise price, less any applicable withholding taxes, and without interest.

 
27

 
As of [______], 2012, the directors and executive officers of the Company held, in the aggregate, options to purchase 37,500 shares of Common Stock, which does not include any unvested options to purchase shares of Common Stock. Assuming the Effective Time occurs on [ _____], 2012 the directors and executive officers holding such options would be entitled to an aggregate cash amount equal to $270,500.
 
The following table shows, for our directors and executive officers, the aggregate number of shares subject to outstanding options, whether vested or unvested and the cash-out value of all outstanding options with a per share exercise price or reference price less than $10.80 (without taking into account any applicable tax withholdings).  The information in the table is as of [_____], 2012.

   
Vested Options
 
Unvested Options
     
Name
 
Number of
 Shares
 Underlying
 Vested
 Options
   
Weighted
 Average
 Exercise
 Price Per
 Share
   
Consideration
 from Vested
 Options
 
Number of
 Shares
 Underlying
 Unvested
 Options
Weighted
 Average
Exercise
 Price Per
 Share
Consideration
 from Unvested
 Options
 
Total
 Consideration
 
B.H. (Barney) Adams
                             
Russell L. Fleischer
    12,500     $ 4.72     $ 76,000           $ 76,000  
John M. Gregory
                                     
Joseph R. Gregory
                                     
Mark R. Mulvoy
    12,500     $ 1.24     $ 119,500           $ 119,500  
Robert D. Rogers
    12,500     $ 4.80     $ 75,000           $ 75,000  
Pamela High
                                     
 
Payments Due Executives and Directors
 
The Company has entered into certain agreements or arrangements with Mr. Adams and Ms. High, which are described below.  These agreements provide for payments to be made to the executives under certain circumstances following the Effective Time, which are summarized below:
 
·  
Mr. Adams serves under an employment agreement with us that expires on December 31, 2012 (the “Employment Agreement”). Effective February 29, 2012, in connection with Mr. Adams’ appointment as our Interim Chief Executive Officer, the Board of Directors agreed to pay Mr. Adams’ an additional salary of $15,000 per month and to pay Mr. Adams a bonus payment of $100,000 upon the earlier of: (i) the appointment of his successor and (ii) the consummation of the sale of the Company.  The Employment Agreement also provides Mr. Adams with certain severance payments in the event his employment is terminated by us without “Cause” or by him for “Good Reason”.  Among other things, Mr. Adams would have “Good Reason” to terminate his employment if his title, position, reporting requirements, responsibilities or duties were substantially reduced, his base salary were reduced or the successor to the Company following a merger were to fail to assume in writing the Employment Agreement.  These severance payments include: (i) payment equal to one year’s base salary in effect immediately prior to such termination and (ii) for a period of one year following such termination, any continuation coverage for which Mr. Adams may be entitled under COBRA.
 
·  
On February 24, 2011, we entered into that certain Agreement Between Executive and Adams Golf Regarding Termination Due to a Change of Control or Termination Without Cause with Ms. High (the “Change of Control Agreement”).  The Change of Control Agreement expires on January 31, 2014. If Ms. High’s employment is terminated as part of a change of control of the Company, Ms. High would be entitled to receive any unpaid compensation earned or accrued as of the effective date of her termination and continued payments of base salary and substantially equal medical benefits for the twelve months following such termination. In addition, on October 23, 2009, Ms. High was granted 50,000 Restricted Stock Shares.  The Restricted Stock Shares vest in four equal annual installments beginning October 2010.  On May 25, 2010, Ms. High was granted 5,000 restricted shares of our common stock.  The restricted stock vests in four equal annual installments beginning May 2011.  On October 28, 2010, Ms. High was granted 30,000 restricted shares of our common stock.  The restricted stock vests in four equal annual installments beginning October 2011.  Upon the occurrence of a change of control, all of Ms. High’s unvested shares of restricted stock would vest no later than the calendar day immediately preceding the sale or closing date of the transaction.

 
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The following table summarizes the estimated amount of the change in control payments that would be paid to our executive officers if each executive officer’s employment were terminated immediately following the Merger, assuming a [_____], 2012 closing date (the “Closing Date”).
 
Name
 
Change
of Control
Payments ($)
 
Benefits
Continuation
 
Total
Pamela J. High
  $ 160,000     $ 7,506     $ 183,506  
B.H. Barney Adams
  $ 220,000 (1)   $ 11,783     $ 231,783  

(1)  Mr. Adams’ change of control payments consist of a $120,000 payment (one year’s base salary) under the Employment Agreement with respect to his position as Chairman of the Board and a $100,000 payment upon the consummation of a sale of the Company in connection with his appointment as our Interim Chief Executive Officer.
 
Interests of Mr. Brewer under Separation Agreement and Release
 
The Company entered into a Separation Agreement and Release with Oliver G. Brewer III, the former President and Chief Executive Officer of the Company, effective as of February 29, 2012, pursuant to which the 75,000 unvested Restricted Stock Shares previously granted to Mr. Brewer were no longer subject to immediate forfeiture upon his termination and vested upon the public announcement of the Merger.  In addition, pursuant to the Employment Agreement between Mr. Brewer and Calloway Golf Company, Mr. Brewer agreed to divest all 842,400 shares of Common Stock, which includes the 75,000 Restricted Stock Shares described above, owned by Mr. Brewer on or before December 31, 2012.  As of [    ], the record date for the special meeting, Mr. Brewer held and is entitled to vote approximately 10.5% of our Common Stock outstanding.
 
Directors’ and Officers’ Indemnification and Insurance
 
The Merger Agreement provides that from the effective time and until a period of six (6) years following the closing date, the surviving corporation will indemnify, defend and hold harmless to the fullest extent permitted by law the present and former officers and directors of the Company and its subsidiaries against all losses, claims, damages, fines, penalties and liability in respect of acts or omissions occurring at or prior to the Effective Time. In addition, the Merger Agreement requires that the indemnification provisions of the certificate of incorporation and bylaws of the surviving corporation contain the provisions with respect to indemnification, advancement of expenses and limitations on liability contained in the Second Amended and Restated Certificate of Incorporation, as amended, and the Amended Bylaws of the Company in effect immediately prior to the Effective Time and that such provisions shall remain in full force and effect for at least six (6) years from the Effective Time.
 
The Merger Agreement provides that, prior to the Effective Time,  the Company will purchase a directors’ and officers’ liability “tail” insurance policy that serves to reimburse present and former officers and directors of the Company and its subsidiaries with respect to claims against such directors and officers arising from facts or events occurring before, at or after the Effective Time, that will contain substantially the same scope and amount of coverage as the policy maintained by the Company immediately prior to the Effective Time. However, the Company will not pay a total premium in excess of 300% of the per annum rate of the aggregate annual premium currently paid by the Company to maintain its existing directors and officers’ insurance coverage.
 
Pursuant to the Merger Agreement, the indemnification and directors’ and officers’ insurance covenants described above will survive the consummation of the Merger and are intended to benefit, and will be enforceable by, any person or entity entitled to be indemnified under this provision of the Merger Agreement (whether or not parties to the Merger Agreement).
 
Section 16 Matters
 
Pursuant to the Merger Agreement, the Company must use commercially reasonable efforts to cause any dispositions of Company equity securities (including derivative securities) by each individual who is subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to the Company to be exempt under Rule 16b-3 promulgated under the Exchange Act.
 
        New Employment Arrangements
 
As of the date of this proxy statement, none of our executive officers nor any member of the Board of Directors has entered into or is in negotiations to enter into any amendments or modifications to existing employment agreements with us or our subsidiaries in anticipation of the Merger, nor has any executive officer who has plans or is expected to remain with the surviving corporation entered into or is in negotiations to enter into any agreement, arrangement or understanding with adidas AG, Parent or their respective affiliates regarding employment with Parent or the surviving corporation. Although no such agreement, arrangement or understanding currently exists for any executive officer at this time, adidas AG or Parent may request some of our executive officers to remain after the Merger is completed, and such executive officers may, prior to the closing of the Merger, enter into new arrangements with adidas AG, Parent or its affiliates regarding employment with Parent or the surviving corporation.  In addition, while no agreements or plans

 
29

 
have been adopted as of the date of this proxy statement, the Company has agreed in the Merger Agreement to cooperate with Parent in connection with implementing retention plans or programs that would become effective immediately upon the Effective Time.

Continued Employee Benefits
 
Parent is to cause the surviving corporation to maintain in effect for at least one year employee benefit plans that provide the employees of the surviving corporation, as of the Effective Time, benefits and compensation plans (including with respect to salary and bonus but not equity awards), which are substantially comparable to those provided by the Company immediately prior to the Effective Time.  All of Adams Golf’s executive officers currently participate or are eligible to participate in Adams Golf’s health and welfare benefit plans, which include medical, dental, vision, life insurance, accidental death and dismemberment insurance, short term and long term disability, employee assistance program, flexible spending accounts and other welfare benefit plans.
 
Material Accounting Treatment

The Merger will be accounted for as a purchase under generally accepted accounting principles. The purchase price will be assigned to the fair value of the net tangible and intangible assets acquired, with any amounts in excess thereof being assigned to goodwill.  Goodwill will be capitalized unless and until it is deemed to be impaired, in which case the impairment will be measured and any such amount will be charged against current earnings.

Material U.S. Federal Income Tax Consequences of the Merger to Our Stockholders
 
The following is a summary of the material U.S. federal income tax consequences of the Merger to U.S. persons (as defined below) and non-U.S. persons (as defined below) whose shares of Common Stock are converted into the right to receive cash in the Merger. This summary does not purport to consider all aspects of U.S. federal income taxation that might be relevant to our stockholders. For purposes of this discussion, we use the term “U.S. person” to mean a beneficial owner of shares of Common Stock that is, for U.S. federal income tax purposes:
 
·  
an individual who is a citizen or resident of the United States;
 
·  
a corporation created or organized under the laws of the United States or any of its political subdivisions;
 
·  
a trust that (i) is subject to the supervision of a court within the United States and the control of one or more U.S. persons or (ii) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person; or
 
·  
an estate the income of which is subject to U.S. federal income tax regardless of its source.
 
For purposes of this discussion, we use the term “non-U.S. person” to mean a beneficial owner, other than a partnership, of shares of Common Stock that is not a U.S. person (as defined above).
 
If a partnership (including an entity treated as a partnership for U.S. federal income tax purposes) holds Common Stock, the tax treatment of a partner will depend on the status of the partner and the activities of the partnership. A partner of a partnership holding Common Stock should consult its tax advisor.
 
This discussion is based on current law, which is subject to change, possibly with retroactive effect. It applies only to beneficial owners that hold shares of Common Stock as capital assets, and may not apply to shares of Common Stock received in connection with the exercise of employee stock options or otherwise as compensation, stockholders that validly exercise their rights under Delaware law to object to the Merger or to certain types of beneficial owners who may be subject to special rules (such as insurance companies, banks, tax-exempt organizations, financial institutions, broker-dealers, partnerships, stockholders subject to the alternative minimum tax, U.S. persons that have a functional currency other than the U.S. dollar, certain former citizens or residents of the United States or stockholders that hold Common Stock as part of a hedge, straddle, integration, constructive sale or conversion transaction). This discussion does not address the assumption of or receipt of consideration in connection with restricted stock, stock appreciation rights, restricted stock units or options to purchase shares of Common Stock, or any other matters relating to equity compensation or benefit plans. This discussion also does not address any aspect of state, local or non-U.S. tax laws.
 
U.S. Persons
 
Exchange of Shares of Common Stock for Cash Pursuant to the Merger Agreement.   The exchange of shares of Common Stock for cash in the Merger by a U.S. person will be a taxable transaction for U.S. federal income tax purposes. In general, a stockholder whose shares of Common Stock are converted into the right to receive cash in the Merger will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference, if any, between the amount of cash received with respect to such shares and the stockholder’s adjusted tax basis in such shares. Gain or loss must be determined separately for each block of shares (i.e., shares acquired at the same cost in a single transaction). Such gain or loss will be long-term capital gain or loss provided that a stockholder’s holding period for such shares is more than twelve (12) months at the time of the consummation of the Merger. Long-term capital gains of individuals are eligible for reduced rates of taxation. There are limitations on the deductibility of capital losses.

 
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Backup Withholding and Information Reporting.   Backup withholding of tax may apply to cash payments to which a non-corporate stockholder is entitled under the Merger Agreement, unless the stockholder or other payee provides a taxpayer identification number, certifies that such number is correct and otherwise complies with the backup withholding rules. Each of our stockholders should complete and sign the Form W-9 that will be included as part of the letter of transmittal and return it to the paying agent, in order to provide the information and certification necessary to avoid backup withholding, unless an exemption applies and is established in a manner satisfactory to the paying agent. Cash received in the Merger also generally will be subject to information reporting.
 
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowable as a refund or a credit against a stockholder’s U.S. federal income tax liability, provided the required information is timely furnished to the Internal Revenue Service.

Non-U.S. Persons
 
Exchange of Shares of Common Stock for Cash Pursuant to the Merger Agreement.   The receipt of cash in exchange for shares of Common Stock in the Merger by a non-U.S. person generally will be exempt from U.S. federal income tax, unless:
 
·  
the gain on shares of Common Stock, if any, is effectively connected with the conduct by the non-U.S. person of a trade or business in the United States (and, if certain income tax treaties apply, is attributable to the non-U.S. person’s permanent establishment in the United States), in which event (i) the non-U.S. person will be subject to U.S. federal income tax as described under “— U.S. Persons” above, but such non-U.S. person should provide a Form W-8ECI instead of a Form W-9, and (ii) if the non-U.S. person is a corporation, it also may be subject to branch profits tax on such gain at a 30 percent rate (or such lower rate as may be specified under an applicable income tax treaty); or
 
·  
the non-U.S. person is an individual who was present in the United States for 183 days or more in the taxable year and certain other conditions are met, in which event the non-U.S. person will be subject to tax at a flat rate of 30 percent (or such lower rate as may be specified under an applicable income tax treaty) on the gain from the exchange of the shares of Common Stock net of applicable U.S. losses from sales or exchanges of other capital assets recognized during the year.
  
Backup Withholding and Information Reporting.   In general, if you are a non-U.S. person, you will not be subject to backup withholding and information reporting on a payment made with respect to shares of Common Stock exchanged for cash in the Merger if you have provided an IRS Form W-8BEN (or a Form W-8ECI if your gain is effectively connected with the conduct of a U.S. trade or business) as part of the letter of transmittal. If shares are held through a foreign partnership or other flow-through entity, certain documentation requirements may also apply to the partnership or other flow-through entity.
 
Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules may be refunded or credited against a non-U.S. person’s U.S. federal income tax liability, if any, provided the required information is timely furnished to the Internal Revenue Service.
 
The U.S. federal income tax consequences described above are not intended to constitute a complete description of all tax consequences relating to the Merger. Because individual circumstances may differ, each stockholder should consult with the stockholder’s own tax advisor regarding the applicability of the rules discussed above to the stockholder and the particular tax effects to the stockholder of the Merger in light of such stockholder’s particular circumstances, the application of state, local and non-U.S. tax laws, and, if applicable, the tax consequences of the assumption of or receipt of consideration in connection with options to purchase Common Stock, restricted stock, stock appreciation rights or restricted stock units.
 
Regulatory Approvals
 
Except for the filing of a certificate of merger in Delaware at or before the Effective Time and subject to the exemption from antitrust approvals discussed below, we are unaware of any material federal, state or foreign regulatory requirements or approvals required for the execution of the Merger Agreement or completion of the Merger.
 
Antitrust Approvals

The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the implementing regulations thereunder (the “HSR Act”) requires the parties to certain acquisitions and other transactions that meet specified minimum size requirements to file a notification with the U.S. Department of Justice, Antitrust Division, and the U.S. Federal Trade Commission, unless an exemption applies.  We and Parent believe that the Merger is exempt from the notification requirements based on the fair market value of our assets that are considered non-exempt under the HSR Act.  Accordingly, neither we nor Parent are expected to make a notification under the HSR Act with respect to the Merger.  If such exemption does not apply, the Merger would not be able to be consummated

 
31

 
until notification and report forms have been filed with the Antitrust Division of the U.S. Department of Justice and the Federal Trade Commission by Parent and Adams Golf, and the applicable waiting period has expired or been terminated.

The FTC and the Antitrust Division frequently scrutinize the legality under the antitrust laws of transactions such as the Merger. At any time before or after the consummation of the merger, the FTC or the Antitrust Division could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the transaction or seeking the divestiture of shares purchased or the divestiture of substantial assets of Adams Golf. Private parties, state attorneys general and/or foreign governmental entities may also bring legal action under antitrust laws under certain circumstances. Based upon an examination of information available relating to the businesses in which Parent, Adams Golf and their respective subsidiaries are engaged, the parties believe that the transaction will not violate antitrust laws. Nevertheless, there can be no assurance that a challenge to the transaction on antitrust grounds will not be made or, if such a challenge is made, what the result would be.

Adams Golf and Parent conduct business in a number of additional countries outside of the United States. The antitrust or merger control statutes or regulations of certain of these foreign countries may require the filing of information with, or the obtaining of the approval of, antitrust or competition authorities therein. Transactions such as the Merger are frequently scrutinized by foreign antitrust and competition authorities. Therefore, there can be no assurance that a challenge to the Merger under foreign antitrust or competition grounds will not be made or, if such a challenge is made, the result thereof.  As of the date hereof, Parent and Adams Golf believe that no such statute or regulation is applicable.  If any such statutes or regulations are hereafter determined to be applicable, Parent and Adams Golf intend to take such action as they may require, but no assurance can be given that any necessary approvals will be obtained. If any applicable waiting period has not expired or been terminated or any approval or exemption required to consummate the Merger has not been obtained, neither Parent nor the Company will be obligated to complete the Merger until such approval has been obtained or such applicable waiting period has expired or exemption been obtained.

Litigation Relating to the Merger

Since the announcement of the Merger, four putative stockholder class action lawsuits have been filed against the Company and the members of the Board of Directors in the Delaware Court of Chancery (the “Court”).  By order of the Court, the four lawsuits have been consolidated into a single stockholder class action (the “Action”).  The Action also names Parent and Merger Sub as additional defendants.  The Action asserts generally that the members of the Board of Directors breached their fiduciary duties by, among other things, failing to maximize stockholder value in the Merger and depriving the stockholders from participating in the Company’s long-term prospects, and further assert that the Company, Parent and Merger Sub aided and abetted those alleged breaches of duty.  The Action seeks, among other relief, an order enjoining the consummation of the Merger, rescissory damages or rescission of the Merger if it is consummated, other damages in an unspecified amount, and an award of attorneys’ fees and costs of litigation.

The Company, Parent and Merger Sub believe that the Action is without merit and intend to defend it vigorously.

Delisting and Deregistration of Common Stock
 
If the Merger is completed, the Common Stock will be delisted from the NASDAQ Capital Market and deregistered under the Exchange Act and we will no longer file periodic reports with the SEC on account of the Common Stock.

 
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THE MERGER AGREEMENT
 
The following sections describe the material provisions of the Merger Agreement but do not purport to describe all of the terms of the Merger Agreement. The summary of the material terms of the Merger Agreement below and elsewhere in this proxy statement is qualified in its entirety by the Merger Agreement. The full text of the Merger Agreement is attached to this proxy statement as Annex A and is incorporated by reference into this proxy statement. This summary may not contain all of the information about the Merger that is important to you. You are urged to carefully read the Merger Agreement in its entirety because it is the legal document that governs the Merger.
 
The Merger Agreement should be read in conjunction with the disclosures in Adams Golf’s filings with the SEC available at the SEC’s website, www.sec.gov. The provisions contained in the Merger Agreement are intended to govern the contractual rights and relationships, and to allocate risks, between Adams Golf and Parent with respect to the Merger. The representations and warranties made by Adams Golf, Parent and Merger Sub to one another in the Merger Agreement were negotiated between the parties, and any inaccuracies in the representations and warranties may be waived by the beneficiary of such representations and warranties. Moreover, the representations and warranties are qualified in a number of important respects, including through the use of exceptions for certain matters disclosed by the Company to Parent in a confidential disclosure schedule and may be subject to a contractual standard of materiality different from those generally applicable to stockholders. None of the representations and warranties will survive the closing of the Merger.
 
 The Merger
 
At the Effective Time, Merger Sub will be merged with and into Adams Golf. The separate corporate existence of Merger Sub will cease and Adams Golf will continue as the surviving corporation. Adams Golf will become a wholly-owned subsidiary of Parent.  Merger Sub was created solely for purposes of the Merger and has no material assets or operations of its own.
 
 Closing and Effective Time
 
The closing of the Merger will take place on the second business day after the satisfaction or waiver of all of the conditions described below under “—Covenants and Agreements—Conditions of the Merger” beginning on page 42 (other than any condition that by its nature cannot be satisfied until the closing of the Merger, but subject to satisfaction of any such condition), unless Adams Golf and Parent agree to another closing time in writing.
 
The Merger will become effective at the time a certificate of merger is filed with the Secretary of State of the State of Delaware or such later time as is specified in the certificate of merger and as is agreed to by Adams Golf and Parent, which is referred to as the Effective Time.
 
 Consideration to be Received in the Merger
 
The Merger Agreement provides that, at the Effective Time, each then issued and outstanding share of Common Stock (other than any shares of Common Stock (i) held in the treasury of Adams Golf, (ii) owned by Parent, (iii) owned by any direct or indirect wholly-owned subsidiary or affiliate of Parent (including Merger Sub), and (iv) held by Adams Golf stockholders validly exercising and perfecting appraisal rights) will be cancelled and extinguished and converted into the right to receive $10.80 in cash, without interest and less any withholding tax, which is referred to as the merger consideration. Following the Effective Time, each holder of shares of Common Stock will cease to have any rights with respect to such shares of Common Stock, except for the right to receive the merger consideration therefore, without interest and less any withholding tax.
 
 Cancellation of Shares
 
Each share of Common Stock held by Adams Golf as treasury stock and each share of Common Stock owned by Parent or any direct or indirect wholly-owned subsidiary or affiliate of Parent (including Merger Sub) immediately prior to the Effective Time will be automatically cancelled and extinguished and will not be entitled to any merger consideration.
 
Treatment of Stock Options and Restricted Stock
 
At the Effective Time, (i) each then outstanding Restricted Stock Share (whether vested or unvested) will be converted into the right to receive a cash payment equal to $10.80 (without interest and less any applicable withholding tax) for each share of Common Stock subject to such award, and (ii) each then outstanding stock option not previously exercised, whether or not then vested and exercisable, will be converted into the right to receive a cash payment equal to (A) (i) the excess, if any, of $10.80 (without interest) over the option exercise price, multiplied by (ii) the number of shares of Adams Golf common stock subject to such stock option, less (B) any applicable withholding tax.
 
We have agreed to use reasonable best efforts to take all such lawful action as may be necessary to provide for and give effect to the foregoing.

 
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Appraisal Rights
 
The Merger Agreement provides that any shares of Common Stock that are issued and outstanding immediately prior to the Effective Time and which are held by those of our stockholders who have not voted in favor of or consented to the Merger and who are otherwise entitled to demand and have properly demanded and perfected their rights to be paid the fair value of such shares of Common Stock in accordance with, and who comply in all respects with Section 262 of the DGCL, will not be converted into the right to receive the merger consideration, and such Adams Golf stockholders will be entitled to only such rights as are granted by Section 262 of the DGCL. However, if any such Adams Golf stockholder fails to perfect or effectively waives, withdraws or loses his, her or its rights under Section 262 of the DGCL, his, her or its shares of Common Stock in respect of which he, she or it would otherwise be entitled to receive fair value under Section 262 of the DGCL will thereupon be deemed to have been converted, at the Effective Time, into the right to receive the merger consideration, less any applicable taxes required to be withheld and without any interest thereon, upon surrender of the certificate(s) representing such shares of Common Stock.
 
 Payment for Shares
 
Prior to completion of the Merger, Merger Sub will appoint a bank or trust company reasonably acceptable to Adams Golf to act as paying agent for the payment of the merger consideration. At the Effective Time, Parent or Merger Sub will deposit, or will cause to be deposited, with the paying agent funds sufficient to pay the merger consideration.
 
As soon as reasonably practicable after the Effective Time (but no later than three business days after the Effective Time), the paying agent will mail to all record holders of a certificate or certificates representing shares of Common Stock whose shares were converted into the right to receive the merger consideration a letter of transmittal and instructions on how to surrender certificates representing such shares of Common Stock or to cause the transfer of such shares of Common Stock in book entry form pursuant to an “agent’s message” (or such other evidence as the paying agent may reasonably request) in exchange for the merger consideration. The certificates can be surrendered or shares of Common Stock transferred, as the case may be, to the paying agent until the first anniversary of the Effective Time. Upon delivery of a valid letter of transmittal and the surrender of Common Stock certificates or transfer of book-entry shares of Common Stock, as the case may be, on or before the first anniversary of the Effective Time, Parent will cause the paying agent to pay the holder of such shares of Common Stock, in exchange therefor, cash in an amount equal to the merger consideration less any taxes required to be withheld multiplied by the number of shares of Common Stock surrendered or transferred, as the case may be, without interest. Each share of Common Stock that is surrendered or transferred will be cancelled. You should not send in your Common Stock certificates or transfer your book entry shares of Common Stock until you receive a letter of transmittal with instructions from the paying agent. Do not send Common Stock certificates with your proxy card.
 
Payment of the merger consideration may be made to a person other than the person in whose name a surrendered share of Common Stock is registered if:
 
·  
such certificate is properly endorsed or otherwise is in proper form for transfer, including book entry transfer; and
 
·  
the person requesting such payment establishes to the satisfaction of Merger Sub that any transfer and other taxes required by reason of such payment in a name other than that of the registered holder of such surrendered or transferred share of Common Stock have been paid or are not applicable.
 
The merger consideration paid upon the surrender of certificates representing shares of Common Stock or transfer of book entry shares of Common Stock in accordance with the Merger Agreement will be deemed to have been paid in full satisfaction of all rights pertaining to the shares of Common Stock. At the Effective Time, the stock transfer books of Adams Golf will be closed and there will not be any further registration of transfers of any shares of Adams Golf’s capital stock thereafter on the records of Adams Golf.
 
If your Common Stock certificate has been lost, stolen or destroyed, you will be entitled to obtain payment of the merger consideration by complying with the reasonable replacement guidelines established by the paying agent and, if reasonably required by the paying agent, posting a bond, in such reasonable amount as the paying agent may direct, as indemnity against any claim that may be made against it with respect to your lost, stolen or destroyed Common Stock certificate.
 
Pursuant to the Merger Agreement, Parent, the surviving corporation and the paying agent may deduct and withhold from the merger consideration and any other amounts payable under the Merger Agreement in connection with the stock options, and Restricted Stock Shares, any amounts required to be withheld or deducted under the applicable federal, state, local or foreign tax laws with respect to the making of such payment.  Any such merger consideration payable with respect to stock options, or Restricted Stock Shares will be paid as soon as practicable after the Effective Time and in any case no later than fifteen (15) business days after the Effective Time.
 
Representations and Warranties
 
The Merger Agreement contains a number of representations and warranties made by Adams Golf, including representations and warranties relating to:
 
·  
corporate organization, good standing and similar matters;

 
34

 
·  
corporate power and authority to execute and deliver the Merger Agreement and to consummate the transactions contemplated by the Merger Agreement;
 
·  
authorization of the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement and enforceability of the Merger Agreement;
 
·  
required governmental filings and consents and absence of violation of applicable laws in connection with the execution, delivery and performance of the Merger Agreement and the consummation of the Merger and the other transactions contemplated by the Merger Agreement;
 
·  
absence of conflicts with, violation or breach of, defaults under, the organizational documents of  the Company and its subsidiaries and certain contracts and permits in connection with the execution, delivery and performance of the Merger Agreement and the consummation of the Merger and the other transactions contemplated by the Merger Agreement;
 
·  
the capitalization of and capital structure of the Company;
 
·  
the ownership of all shares of capital stock of the Company by Parent upon consummation of the Merger;
 
·  
the Company’s ownership of all subsidiaries;
 
·  
accuracy and sufficiency of SEC filings;
 
·  
compliance with NASDAQ Capital Market rules and regulations;
 
·  
preparation of the consolidated financial statements of the Company and its subsidiaries in accordance with United States GAAP on a consistent basis and in compliance with applicable SEC rules and regulations;
 
·  
indebtedness;
 
·  
accounts receivable;
 
·  
inventory;
 
·  
absence of certain “off-balance sheet arrangements;”
 
·  
internal controls over financial reporting;
 
·  
absence of certain changes or events and the conduct of business in the ordinary course of business since January 1, 2012;
 
·  
absence of undisclosed material liabilities;
 
·  
compliance with applicable laws (including anti-bribery and export control laws), court orders and certain regulatory matters;
 
·  
material contracts;
 
·  
accuracy of the information in this proxy statement;
 
·  
legal proceedings;
 
·  
labor matters;
 
·  
employee compensation and benefits matters and matters relating to the Employee Retirement Income Securities Act of 1974, as amended;
 
·  
real property;
 
·  
intellectual property;
 
·  
environmental matters and compliance with environmental laws;
 
·  
tax matters;
 
·  
receipt of a fairness opinion from Morgan Stanley;
 
·  
brokers’, finder’s and similar fees payable in connection with the Merger and the other transactions contemplated by the Merger Agreement;
 
·  
the inapplicability of state takeover statutes;
 
·  
insurance;
 
·  
related party transactions;
 
·  
significant customers; and
 
·  
illegal payments.  
 
The Merger Agreement also contains a number of representations and warranties by Parent and Merger Sub, including representations and warranties relating to:

 
35

 
·  
corporate organization, good standing and similar matters;
 
·  
corporate power and authority to execute and deliver the Merger Agreement and to consummate the transactions contemplated by the Merger Agreement;
 
·  
authorization of the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, and enforceability of the Merger Agreement;
 
·  
required governmental filings and consents and absence of violation of applicable laws in connection with the execution, delivery and performance of the Merger Agreement and the consummation of the Merger and the other transactions contemplated by the Merger Agreement;
 
·  
absence of conflicts with, violation or breach of, defaults under, the organizational documents of Parent or Merger Sub and certain contracts and permits in connection with the execution, delivery and performance of the Merger Agreement and the consummation of the Merger and the other transactions contemplated by the Merger Agreement;
 
·  
“interested stockholder” (as defined in Section 203 of the DGCL) status and the ownership of shares of Common Stock;
 
·  
accuracy of information supplied by Parent or Merger Sub for inclusion or incorporation by reference in this proxy statement;
 
·  
sufficiency of funds to pay the merger consideration;
 
·  
solvency of Parent and the Surviving Corporation upon consummation of the Merger;
 
·  
operations of Merger Sub since its formation;
 
·  
legal proceedings; and
 
·  
acknowledgment of disclaimer of express or implied representations or warranties of the Company, except as set forth in the Merger Agreement and the Company’s disclosure letter.
  
Significant portions of the representations and warranties of Adams Golf, Parent and Merger Sub are qualified as to “materiality” or “material adverse effect.” Under the Merger Agreement, a material adverse effect means, when used in connection with Adams Golf, any event, circumstance, change, occurrence, state of facts or effect that (i) has, or would reasonably be expected to have, a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of Adams Golf and its subsidiaries, taken as a whole, or (ii) prevents or materially delays the ability of Adams Golf to consummate the Merger, other than, in the case of clause (i), any such events, circumstances, changes, occurrences or states of facts to the extent resulting from any of the following (except, in the case of the first, second and fourth and fifth bullets below, to the extent such event, circumstance, change, occurrence, state of facts or effect has a disproportionately adverse effect on Adams Golf and its subsidiaries, taken as a whole, relative to other participants in the industry or industries in which the Company operates):
 
·  
changes in industries in which Adams Golf and its subsidiaries operate in general;
 
·  
general legal, regulatory, political, business, economic, financial or securities market conditions in the United States or elsewhere (including fluctuations, in and of themselves, in the price of the shares of Common Stock);
 
·  
the announcement of the Merger Agreement, the pendency of the Merger and transactions contemplated by the Merger Agreement, the identity of Parent and the undertaking and performance or observance of the obligations contemplated by the Merger Agreement or necessary to consummate the transactions contemplated by the Merger Agreement, including adverse effects on the results of operations attributable to uncertainties associated with the period between March 18, 2012 and the Closing Date or the consummation of the Merger or any of the transactions contemplated by the Merger Agreement or the impact thereof on relationships, contractual or otherwise, with customers, suppliers, distributors, partners or employees;
 
·  
acts of war, insurrection, sabotage or terrorism;
 
·  
changes in GAAP or the accounting rules or regulations of the SEC, in each case, arising or becoming effective after March 18, 2012; or
 
·  
the failure, in and of itself, by Adams Golf to meet any internal or published projections, forecasts or revenue or earnings predictions for any period ending on or after March 18, 2012 (it being understood that the causes underlying any such failure may be considered in determining whether a material adverse effect has occurred or would be reasonably expected to occur).
 
Covenants and Agreements
 
Operating Covenants
 
We have agreed generally to operate the business of the Company in the ordinary course consistent with past practices and specifically, with certain exceptions, that during the period from the date of the Merger Agreement until the Effective Time:

 
36

 
·  
the Company and its subsidiaries will conduct business in all material respects in the ordinary course of business consistent with past practice and, to the extent consistent therewith, each of the Company and its subsidiaries shall use its commercially reasonable efforts to (A) preserve its business organizations intact, (B) maintain its existing relationships with material customers, suppliers, employees, creditors and business partners, to keep available the services of its present officers and employees and to manage its working capital (including the payment of accounts payable and the receipt of accounts receivable), and (C) (i) file all tax returns required to be filed by it and pay all of its debts and taxes when due and (ii) pay or perform its other liabilities when due, in each case, subject to good faith disputes over such debts, taxes or liabilities;
 
·  
the Company will not amend its Second Amended and Restated Certificate of Incorporation or Amended Bylaws and its subsidiaries will not amend their certificate of incorporation, bylaws or other comparable charter or organizational documents;
 
·  
neither the Company nor any of its Subsidiaries will (A) declare, set aside or pay any dividend or other distribution payable in cash, stock or property with respect to its capital stock (other than by and among the Company and its subsidiaries); (B) issue, sell, transfer, pledge, dispose of or encumber or agree to issue, sell, transfer, pledge, dispose of or encumber any additional shares of, or securities convertible into or exchangeable for, or options, warrants, calls, puts, collars, commitments or rights of any kind to acquire or sell (or stock appreciation rights with respect to), any shares of capital stock of the Company or any of its subsidiaries (including treasury stock), other than in respect of (1) the shares of the Company's capital stock reserved for issuance on the date of the Merger Agreement pursuant to the exercise of Options outstanding on the date of the Merger Agreement or the vesting of Restricted Stock Shares or (2) grants of Options or Restricted Stock Shares to new hires pursuant to offer letters outstanding as of the date of the Merger Agreement and disclosed to Parent, (C)  split, combine or reclassify the Common Stock or any outstanding capital stock of any of the subsidiaries of the Company or (D) redeem, purchase or otherwise acquire, directly or indirectly, any of the Company's capital stock;
 
·  
except as required by applicable law or under the terms of any of the Company’s benefit plans, the Company will not (A) make any changes in the compensation payable or to become payable to any of its officers, directors, employees, agents, consultants or other persons providing management services (other than increases in wages in the ordinary course of business and consistent with past practice to employees of the Company or its subsidiaries who are not officers, directors or affiliates of the Company), (B) adopt, enter into or amend (including acceleration of vesting) any employment, severance, consulting, termination, deferred compensation or other employee benefit agreement (collectively referred to as, "Employment Agreements") including, without limitation, any of the Company’s benefit plans, except that the Company and its subsidiaries may in the ordinary course of business consistent with past practice enter into in any such agreement in connection with the hiring of new employees who are not executive officers or direct reports to an executive officer, (C) make any loans (other than travel and payroll advances to non-officer employees in the ordinary course of business consistent with past practice) to any of its officers, directors, employees, affiliates, agents or consultants or make any change in its existing borrowing or lending arrangements for or on behalf of any of such persons pursuant to a benefit plan of the Company or otherwise, (D) take (or omit to take) any action which action (or omission to act) would reasonably be expected to result in a "good reason", "constructive termination", or similar event, for purposes of any Employment Agreement;
 
·  
except as required by applicable law or under the terms of any employee benefit plan of the Company as of the date of the Merger Agreement, the Company will not and will not permit its subsidiaries to (A) pay or make any accrual or arrangement for payment of any pension, retirement allowance or other employee benefit pursuant to any existing plan, agreement or arrangement to any officer, director, employee or affiliate (other than in the ordinary course consistent with past practice), (B) pay or agree to pay or make any accrual or arrangement for payment to any officers, directors, employees or affiliates of the Company of any amount relating to unused vacation days, or (C) adopt or pay, grant, issue, accelerate or accrue salary or other payments or benefits pursuant to any employee benefit plan of the Company, agreement or arrangement, or any employment or consulting agreement with or for the benefit of any past or present director, officer, employee, agent or consultant;
 
·  
except in the ordinary course of business consistent with past practice, as required by applicable law or under the terms of any of the Company’s benefit plans, the Company will not (A) pay or make any accrual or arrangement for payment of any pension, retirement allowance or other employee benefit pursuant to any existing plan or agreement to any officer, director, employee or affiliate, other than in the ordinary course of business consistent with past practice, (B) pay or agree to pay or make any accrual or arrangement for payment to any officers, directors, employees or affiliates of the Company of any amount relating to unused vacation days, or (C) adopt or pay, grant, issue, accelerate or accrue salary or other payments or benefits pursuant to any Company benefit plan, or any employment or consulting agreement with or for the benefit of any director, officer, employee, agent or consultant;
 
·  
neither the Company nor any of its subsidiaries will, (A) incur or assume any long-term or short-term indebtedness (including without limitation drawing down any amounts under the Company’s credit facility), (B) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other person, (C)  make any loans, advances or capital contributions to, or investments in, any other person or enter into

 
37

 
  
any material commitment or transaction (including, any borrowing, capital expenditure or purchase, sale or lease of assets or real estate); provided, however, that for the purposes of the foregoing, indebtedness shall not include, or be deemed to include, and the foregoing shall not prohibit, or be deemed to prohibit, normal terms of payment with the Company’s customers or revolving credit on the Company’s credit or charge cards in the ordinary course of business consistent with past practices;
 
·  
neither the Company nor any of its subsidiaries will make or authorize any initial capital expenditure, other than capital expenditures contemplated by the Company's existing capital budget;
 
·  
neither the Company nor any of its subsidiaries will pay, discharge, waive or satisfy any rights, claims, liabilities or obligations, other than the payment, discharge, waiver, settlement or satisfaction of any such rights, claims, liabilities or obligations, in the ordinary course of business and consistent with past practice, or claims, liabilities or obligations reflected or reserved against in, or contemplated by, the Company’s financial statements (or the notes to the Company’s financial statements);
 
·  
neither the Company nor any of its subsidiaries will (A) change any of the accounting methods, principles or practices used by it unless required by a change in GAAP or law, (B) settle any material tax claim, assessment, audit or investigation, (C) consent to any material tax claim or assessment or any waiver of the statute of limitations for any such claim or assessment, (D) make, revoke or change any tax election, (E) request a tax ruling, (F) amend any tax return, or (G) file any tax return in a manner that is materially inconsistent with past custom and practice with respect to the Company or any of its subsidiaries unless required by applicable law;
 
·  
neither the Company nor any of its subsidiaries will (A) adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization (other than the Merger Agreement) or (B) acquire, transfer, lease, license, sell, mortgage, pledge, dispose of or encumber any material assets, other than in the ordinary course of business and consistent with past practice;
 
·  
neither the Company nor any of its subsidiaries will acquire (by merger, consolidation, acquisition of stock or assets or otherwise), directly or indirectly, any assets (other than in the ordinary course of business consistent with past practices), securities, properties, interests or businesses;
 
·  
neither the Company nor any of its subsidiaries will sell, lease, license or otherwise transfer any of its material assets, securities, properties, interests or businesses, other than the sale of inventory in the ordinary course of business;
 
·  
neither the Company nor any of its subsidiaries will amend, supplement, or terminate any material contract or enter into any contract that would constitute a material contract, other than in the ordinary course of business consistent with past practices;
 
·  
neither the Company nor any of its subsidiaries will initiate or settle any material action; or
 
·  
neither the Company nor any of its subsidiaries will enter into an agreement, contract, commitment or arrangement to do any of the foregoing, or to authorize, recommend, propose or announce an intention to do any of the foregoing.
  
No Solicitation; Board Recommendation
 
We have agreed that we will not, nor will we authorize or permit any of our subsidiaries or our or their officers, directors or employees, investment bankers, attorneys, accountants, financial advisors or other advisors, agents or other representatives to, directly or indirectly:
 
·  
solicit, initiate, facilitate or encourage (including by providing information) the submission of any Acquisition Proposal or any proposal or offer that could reasonably be expected to lead to an Acquisition Proposal;
 
·  
enter into, engage in or otherwise participate in any discussions or negotiations with, furnish any information relating to the Company or any of its subsidiaries or afford access to the business, properties, assets, books or records of the Company or any of its subsidiaries to, or otherwise cooperate in any way with any third party that has made, or that the Company knows is considering making, an Acquisition Proposal;
 
·  
enter into any agreement in principle, letter of intent, term sheet, merger agreement, acquisition agreement, option agreement or other similar instrument relating to an Acquisition Proposal or that could reasonably be expected to lead to an Acquisition Proposal;
 
·  
fail to take all action necessary to enforce, or waive, terminate, modify or amend, any confidentiality, standstill or similar agreement to which the Company or any of its subsidiaries is a party or otherwise bound; or
 
·  
resolve by action of our Board of Directors, to publicly propose or agree to do any of the foregoing.
 
Additionally, neither us nor any of our subsidiaries, our Board of Directors or any representative thereof may, directly or indirectly, (i) withhold, withdraw (or not continue to make), qualify or modify (or publicly propose or resolve to withhold, withdraw (or not continue to make), qualify or modify), in a manner adverse to Parent or Merger Sub, the Board of Directors’ recommendation with respect to the Merger or (ii) adopt, approve or recommend an Acquisition Proposal.  The foregoing is referred to as an “adverse recommendation change.”

 
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The Merger Agreement provides that, notwithstanding the restrictions described above, at any time prior to the time that our stockholders adopt the Merger Agreement, the Company may (A) engage in negotiations or discussions with respect to a bona fide, unsolicited written Acquisition Proposal that the Board of Directors determines in good faith, after consultation with outside legal counsel and its financial advisor) constitutes or would reasonably be expected to lead to a Superior Proposal, and (B) thereafter furnish non-public information relating to the Company or any of its subsidiaries pursuant to a confidentiality agreement with such third party on terms and conditions substantially similar to those contained in the confidentiality agreement entered into with adidas Group and which permits the Company to comply with the terms of the Merger Agreement; provided, that all such information (to the extent that such information has not been previously provided or made available to Parent) is provided or made available to Parent, as the case may be, prior to or substantially concurrently with the time it is provided or made available to such third party.  The Company was further required to immediately cease any existing activities, discussions or negotiations with any other persons conducted prior to the date of the Merger Agreement with respect to any Acquisition Proposal, to revoke or withdraw access granted to any such other parties to any data room (virtual or actual) containing non-public information and to take such actions necessary to enforce any confidentiality or “standstill” provisions in effect to which the Company is a beneficiary.
 
We have also agreed to promptly (but in no event later than one business day after receipt) advise Parent of the receipt of any Acquisition Proposal and the material terms of any such takeover proposal.  In connection with the notice provided pursuant to the preceding sentence, the Company must include the material terms and conditions of such Acquisition Proposal, including the identity of the bidder. In addition, we have agreed to keep Parent reasonably informed on a current basis of the status of any takeover proposal, indication, inquiry or request.
 
Notwithstanding the foregoing restrictions, our Board of Directors may at any time prior to the adoption of the Merger Agreement by our stockholders, (a) in response to a bona fide, unsolicited written Acquisition Proposal that the Board determined in good faith (after consultation with its outside legal counsel and financial advisor) constitutes a Superior Proposal, (i) terminate the Merger Agreement and cause the Company to enter into a definitive agreement with respect to such Superior Proposal (see “Covenants and Agreements—Termination” beginning on page 43 for applicable termination procedures), and (ii) make an adverse recommendation change or (b) make an adverse recommendation change (i) in response to a reasonably unanticipated material development or change in circumstances that occurs or arises after the date of the Merger Agreement that is positive to the Company and the reasonably likely effect of which was not known or reasonably foreseeable by the Board (other than the receipt of an Acquisition Proposal) (an “Intervening Event”) and (ii) the Board determines in good faith (after consultation with its outside legal counsel and financial advisor), in light of such Intervening Event, that a failure to make an adverse recommendation change could reasonably result in a breach of its fiduciary duties to the stockholders of the Company, but, in each case, only at a time that is after the fourth business day following our delivery to Parent of written notice advising it that our Board of Directors intends to take such action, specifying, in the case of the termination of the Merger Agreement for purposes of entering into a definitive agreement with respect to the Superior Proposal, the terms and conditions of such Superior Proposal, including the identity of the person making the Superior Proposal and, in the case of making the adverse recommendation change, reasonably specify the basis upon which the Board intends to effect such adverse recommendation change.  However, upon the receipt of a Superior Proposal from a third party and Parent amending and revising the terms of the Merger to match such Superior Proposal, if that third party makes another Acquisition Proposal, the notice period would be reduced from four days to two days.
 
The foregoing is further subject to the following requirements:
 
·  
any amendment to the financial terms or any other material term of any applicable Acquisition Proposal or Superior Proposal will require a new written notice by us and a new four business day period, and no termination of the Merger Agreement by us or adverse recommendation change may be made during any such four business day period;
 
·  
during the four business day period referenced in the immediately preceding bullet point, we will, and we will cause our financial and legal advisors to, if requested by Parent, negotiate with Parent in good faith to make such changes in the terms and conditions of the Merger Agreement so that, with respect to any adverse recommendation change that is not in response to an Intervening Event, such Acquisition Proposal ceases to constitute a Superior Proposal or, with respect to any adverse recommendation change in response to an Intervening Event, so that the Board no longer concludes that a failure to make such adverse recommendation change could reasonably result in a breach of its fiduciary duties to the stockholders of the Company;
 
·  
our Board of Directors will take into account any changes to the financial and other terms of the Merger Agreement proposed by Parent in response to any such written notice by us or otherwise; and
 
·  
the requirements for terminating the Merger Agreement and making the adverse recommendation change are still satisfied at the time the Merger Agreement is terminated or at the time such adverse recommendation change is made.
 
 
An “Acquisition Proposal” as used herein means other than the transactions contemplated by the Merger Agreement, any offer or proposal from any third party relating to (i) any acquisition, purchase, lease or license, direct or indirect, of 20% or more of the consolidated assets of the Company and its subsidiaries or 20% or more of any class of equity or voting securities of the Company or
 
39

 
any of its subsidiaries whose assets, individually or in the aggregate, constitute 20% or more of the consolidated assets of the Company, (ii) any tender offer (including a self-tender offer) or exchange offer that, if consummated, would result in such third party beneficially owning 20% or more of any class of equity or voting securities of the Company or any of its subsidiaries whose assets, individually or in the aggregate, constitute 20% or more of the consolidated assets of the Company or (iii) any merger, consolidation, share exchange, business combination, sale of substantially all the assets, reorganization, recapitalization, liquidation, dissolution or other similar transaction involving the Company or any of its subsidiaries whose assets, individually or in the aggregate, constitute 20% or more of the consolidated assets of the Company.
 
A “Superior Proposal” as used herein means a bona fide, unsolicited written Acquisition Proposal (except that the references therein to “20%” shall be replaced by “50%”), the initial receipt of which did not result from or arise in connection with a breach of the non-solicitation provisions of the Merger Agreement by the Board or the Company and which the Board determines in good faith, after considering the advice of outside legal counsel and its financial advisor and taking into account all the terms and conditions of such Acquisition Proposal, (a) if accepted, is reasonably likely to be consummated and (b) would result in a transaction that is more favorable to the Company's stockholders (other than Parent and any of its affiliates) from a financial point of view than the Merger taking into account any financing contingencies, if any, of such Acquisition Proposal and the fully committed financing of the merger consideration hereunder.
 
Nothing described above limits our ability to take and disclose to our stockholders a position contemplated by Rule 14e-2(a) or Rule 14d-9 promulgated under the Exchange Act or to make any other disclosure to our stockholders if, in our board’s determination in good faith after consultation with outside counsel, such disclosure is required under applicable law (provided that the Company and our Board of Directors may not make adverse recommendation change except to the extent expressly permitted by the exceptions referenced above and that the Company must include an affirmation of the Board of Directors’ recommendation in favor of the Merger Agreement in any such disclosure, unless prohibited by law).
 
Reasonable Best Efforts and Certain Pre-Closing Obligations
 
We and Parent have agreed to use our reasonable best efforts to take, or cause to be taken, actions, and do, or cause to be done, things necessary, proper or advisable under any applicable laws to consummate and make effective the Merger and the other transactions contemplated by the Merger Agreement as promptly as practicable, including using reasonable best efforts in:
 
·  
the preparation and filing of all forms, registrations and notices required to be filed to consummate the Merger and the other transactions contemplated by the Merger Agreement;
 
·  
if required, to file, as promptly as practicable, but in any event no later than twenty (20) business days after the date of the Merger Agreement, notifications under the HSR Act, to respond, as promptly as practicable, to any inquiries received from the Federal Trade Commission and the Antitrust Division of the Department of Justice and to resolve any objections with respect thereto or any other federal, state or foreign laws that are designed to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade (provided that neither party shall be required to sell, divest or dispose of its businesses, product lines or assets or otherwise taking or committing to take actions that would limit their freedom of action with respect to its businesses, product lines or assets);
 
·  
the satisfaction  of the other parties’ conditions to consummating the Merger and the other transactions contemplated by the Merger Agreement;
 
·  
obtaining (and cooperating with each other in obtaining) any consent, authorization, order or approval of, or any exemption by, any third party, including any governmental entity required to be obtained or made in connection with the Merger and the other transactions contemplated by the Merger Agreement; and
 
·  
the execution and delivery of any additional instruments necessary to consummate the Merger and the other transactions contemplated by the Merger Agreement and to fully carry out the purposes thereof subject to compliance with the Merger Agreement.
 
In addition, we and Parent have each agreed to coordinate and cooperate in connection with:
 
·  
the preparation and filing of this proxy statement with the SEC;
 
·  
determining whether any action by or in respect of, or filing with, any governmental entity is required, or any actions are required to be taken under, or consents, approvals or waivers are required to be obtained from parties to, any material contracts, in connection with the closing of the Merger; and
 
·  
timely taking any such actions, seeking any such consent, approvals or waivers or making any such filings or furnishing information required in connection with the proxy statement or any other filings.
 
We and Parent have agreed to notify the other as promptly as practicable with respect (a) to the occurrence or non-occurrence of any event that would reasonably be expected to cause either (i) any representation or warranty to be inaccurate or (ii) any condition to the Merger to be unsatisfied, (b) any material failure to comply with any covenant, condition or agreement to be complied with or satisfied under the Merger Agreement, or (c) any notice or communication from any governmental entity.  Additionally, Parent has acknowledged that it does not have actual knowledge of any breach of the Company’s representations or warranties, except with

 
40

 
respect to the ownership of all capital stock of the Company after the Effective Time, and shall notify the Company if it becomes aware of any such breach.
 
Access to Information; Confidentiality
 
We have agreed to provide Parent and its representatives, from time to time prior to the earlier of the Effective Time or the termination of the Merger Agreement, such information as Parent reasonably requests with respect to the Company and its subsidiaries and their respective businesses, financial condition and operations, and to provide Parent and its representatives access at reasonable times and upon reasonable prior notice to the officers, employees, agents, properties, offices and facilities of the Company and its subsidiaries and to their respective books and records, subject to certain exceptions.  We have also agreed to allow Parent and its representatives, upon reasonable advance notice, to perform customary, non-invasive environmental inspections at our leased facilities.  Such non-public information received from us or our affiliates or representatives will be held in confidence in accordance with the provisions of the confidentiality agreement between the Company and adidas Group.  Parent will indemnify, defend and hold harmless the Company and its subsidiaries with respect to any and all liabilities, resulting directly from the action or inaction of Parent or its representatives during any visit to the Company.  Parent will, and will cause its representatives, to treat all information received as confidential and subject to the confidentiality agreement entered into between adidas Group and the Company.
 
Meeting of Our Stockholders
 
We have agreed to, as soon as practicable after the date of the Merger Agreement, duly call, give notice of, convene and hold a special meeting of our stockholders for the purpose of considering and taking action upon the adoption of the Merger Agreement, which special meeting is the subject of this proxy statement. Our Board of Directors must recommend the Merger Agreement and the Merger to our stockholders, unless there has been an adverse recommendation change, and use its reasonable best efforts to obtain the stockholder approval. Notwithstanding any adverse recommendation change, unless the Merger Agreement is validly terminated in accordance with the terms thereof, the Merger Agreement must be submitted to the stockholders for approval and the Company and Board must take all reasonably lawful action to call, convene and hold the special meeting substantially consistent with the Company's past practices for its stockholder meetings held since January 1, 2009.
 
Indemnification and Insurance
 
Pursuant to the terms of the Merger Agreement, from and after the Effective Time and for at least six (6) years, the surviving corporation will, and Parent will cause the surviving corporation to, to the fullest extent permitted under the DGCL, honor the Company’s obligations existing as of the date of the Merger Agreement to indemnify and hold harmless each present and former director and officer of the Company and its subsidiaries against all costs and expenses (including attorneys’ and accountants’ fees), judgments, fines, losses, claims, damages, liabilities and settlement amounts paid in connection with any claim, action, suit, proceeding or investigation (whether arising before or after the Effective Time), whether civil, administrative or investigative, based on the fact that such individual is or was such a director or officer or is or was serving at the request of the Company or its subsidiaries and arising out of or pertaining to any action or omission occurring at or before the Effective Time (including the transactions contemplated by the Merger Agreement). The Merger Agreement also provides that the Company will, prior to the Effective Time, purchase a directors’ and officers’ liability “tail” insurance policy, which insurance will contain substantially equivalent scope and amount of coverage as provided in the existing policy maintained by the Company immediately prior to the Effective Time, subject to certain limitations on the amount of premiums required to be paid for such insurance coverage.
 
Employee Benefit Matters
 
Parent has agreed to provide employee benefit plans to the Company’s employees substantially comparable to those currently provided by the Company (including with respect to salary and bonus but not equity awards) for at least one year from the Effective Time.  Parent has agreed that with respect to any Parent employee benefit plan in which any employee of the Company or any of its subsidiaries first becomes eligible to participate on or after the Effective Time, Parent will (i)  waive all pre-existing conditions, exclusions and waiting periods with respect to participation and coverage requirements applicable to such employee and his or her eligible dependents under such plan, except to the extent such pre-existing conditions, exclusions or waiting periods applied immediately prior to the Effective Time under the analogous employee benefit plan of the Company, (ii) provide such employee and his or her eligible dependents with credit for any co-payments and deductibles paid prior to becoming eligible to participate in such Parent employee benefit plan  under the analogous Company employee benefit plan in satisfying any applicable deductible or annual or lifetime maximum out-of-pocket requirements under such Parent employee benefit plan and (iii) recognize all service of such employee with the Company and its subsidiaries and predecessors that was recognized by the Company or any such subsidiary prior to the date of the Merger Agreement in the ordinary course of administering its or such subsidiary’s employee benefits, for purposes of eligibility to participate and vesting in benefits under such plan, to the extent that such service was recognized for that purpose under any analogous employee benefit plans of the Company provided that, in no event will the recognition of prior service result in the duplication of benefits.

 
41

 
Additional Agreements
 
The Merger Agreement contains additional agreements between us and Parent relating to, among other things:
 
·  
consultations regarding public announcements;
 
·  
notification of certain matters; and
 
·  
compliance of Merger Sub with all of its obligations under or related to the Merger Agreement.
 
Conditions of the Merger
 
The obligation of each party to the Merger Agreement to effect the Merger is subject to the satisfaction or waiver on or before the Closing Date of the following conditions:
 
·  
adoption of the Merger Agreement by Adams Golf stockholders;
 
·  
to the extent applicable, (i) the waiting period (including any extension thereof) applicable to the consummation of the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, will have expired or been terminated; and (ii) all other material filings with or permits, authorizations, consents and approvals of or expirations of waiting periods imposed by any governmental entity required to consummate the Merger or the other transactions contemplated by the Merger Agreement will have been obtained or filed or will have occurred (collectively, (i) through (ii) are referred to as the governmental approval condition);
 
·  
no order or law, entered, enacted, promulgated, enforced or issued by any court of competent jurisdiction, or any other governmental entity, or other legal restraint or prohibition, each of which is referred to as a transaction restraint, shall be in effect preventing the consummation of the Merger or the other transactions contemplated by the Merger Agreement (provided, however, that each of the parties to the Merger Agreement will have used its reasonable best efforts to prevent the entry of any such transaction restraints and to appeal as promptly as possible any such transaction restraints that may be entered to the extent required by the Merger Agreement); and
 
·  
no governmental entity will have instituted (or if instituted, will not have withdrawn) any action, suit, proceeding, claim, arbitration or investigation wherein an unfavorable injunction, judgment, order, decree, ruling or charge would (i) prevent or restrain the consummation of the transactions contemplated by the Merger Agreement, or (ii) cause any of the transactions contemplated by the Merger Agreement to be rescinded following consummation thereof.
 
The obligation of Parent and Merger Sub to effect the Merger is further subject to the satisfaction, or waiver by Parent and Merger Sub, on or prior to the Closing Date, of the following conditions:
 
·  
accuracy as of the date of the Merger Agreement and as of the closing of the Merger of the representations and warranties made by us to the extent specified in the Merger Agreement;
 
·  
performance of or compliance with the covenants and agreements contained in the Merger Agreement to be performed or complied with by us prior to or on the Closing Date to the extent specified in the Merger Agreement;
 
·  
delivery to Parent of a certificate signed by an executive officer certifying to the satisfaction of the two conditions above-mentioned;
 
·  
absence of the occurrence of any development, change, circumstance or condition prior to the Effective Time that has had or would reasonably be expected to have a material adverse effect on the Company; and
 
·  
the delivery of a FIRPTA certificate by the Company.
 
The obligation of Adams Golf to effect the Merger is further subject to the satisfaction, or waiver by Adams Golf, on or prior to the Closing Date, of the following conditions:
 
·  
accuracy as of date of the Merger Agreement and as of the closing of the Merger of the representations and warranties made Parent and Merger Sub to the extent specified in the Merger Agreement;
 
·  
performance of or compliance with the covenants and agreements of each of Parent and Merger Sub contained in the Merger Agreement to be performed or complied with by it prior to or on the Closing Date to the extent specified in the Merger Agreement; and
 
·  
delivery to us of a certificate signed by an executive officer of each of Parent and Merger Sub certifying to the satisfaction of the two conditions above-mentioned.
 
We and Parent can provide no assurance that all of the conditions precedent to the Merger will be satisfied or waived by the party permitted to do so.

 
42

 
Termination
 
We, Parent and Merger Sub may mutually agree in writing, at any time prior to the Effective Time, to terminate the Merger Agreement and abandon the Merger. Also, either Parent or we may terminate the Merger Agreement and abandon the Merger without the consent of the other, at any time prior to the Effective Time if:
 
·  
the Merger is not consummated on or before September 30, 2012 (the "Outside Date"); provided, however, that such termination right shall not be available to any party whose breach of any provision of the Merger Agreement caused the failure of the Merger to be consummated by such time; provided, further, however, that, if, on the Outside Date, either of the conditions to the Closing with respect to antitrust approvals, any order or law preventing the transaction or any governmental order preventing or restraining the consummation of the Merger shall not have been fulfilled but all other conditions to the Closing either have been fulfilled or are then capable of being fulfilled, then the Outside Date shall, without any action on the part of the parties hereto, be extended to December 31, 2012, and such date shall become the Outside Date for purposes of this Agreement, with further extension of the Outside Date available by mutual written consent of Parent and the Company;
 
·  
a final and non-appealable restraining order, permanent injunction or other order has been issued by a governmental entity or some other legal restraint or prohibition that makes illegal or otherwise prohibits the consummation of the Merger or enjoins the Company or Parent from consummating the Merger or any of the other transactions contemplated by the Merger Agreement; or
 
·  
our stockholders fail to adopt the Merger Agreement at the special meeting (including any adjournments and postponements thereof); provided, however, if the stockholders would have approved the adoption of the Merger Agreement but for a breach of one of the Voting Agreements, the Company shall not exercise its termination right for 30 business days in order for Parent to attempt to enforce its remedies against any such breaching party under the Voting Agreements and the parties shall reasonably cooperate to adjourn or postpone the special meeting to enable such specific enforcement.
 
Parent can terminate the Merger Agreement before the Effective Time if:
 
·  
an adverse recommendation change shall have occurred; or
 
·  
there has been a material breach of the non-solicitation provision by the Company.
 
We can terminate the Merger Agreement:
 
·  
before the Effective Time and only prior to the adoption of the Merger Agreement by our stockholders at the special meeting, in order to promptly enter into a definitive agreement with respect to a Superior Proposal subject to our compliance with the non-solicitation provisions of the Merger Agreement and payment of the related termination fee (as set forth below) and provided that we satisfy certain notice and negotiation requirements (as described in –No Solicitation; Board Recommendation above).
 
Termination Fees
 
Pursuant to the Merger Agreement, we will be required to pay Parent the Termination Fee equal to 4% of the aggregate consideration payable to all stockholders and optionholders if the Merger Agreement is terminated:
 
·  
by Parent as a result of any adverse recommendation change having occurred or there having been a material breach of the non-solicitation requirements (as described in the section entitled “The Merger Agreement–No Solicitation; Board Recommendation” above); provided, that Parent shall not be entitled to the Termination Fee if it has delivered to the Company notice of termination of the Merger Agreement more than thirty (30) days after Parent's executive officers obtained actual knowledge of the material breach of the non-solicitation requirements;
 
·  
by Parent or the Company after the (i) Outside Date or the failure of the stockholders to approve the adoption of the Merger Agreement at the special meeting and (ii) an adverse recommendation change has occurred;
 
·  
by the Company in connection with entering into a binding written definitive agreement concerning a Superior Proposal; or
 
·  
by the Company after (i) an Acquisition Proposal shall have been made to the Company or directly to the stockholders or shall have been otherwise become publicly known or any person shall have publicly announced an intention to make an Acquisition Proposal, (ii) Outside Date or the failure of the stockholders to approve the adoption of the Merger Agreement at the special meeting and (iii) within twelve (12) months of such termination, the Company shall have entered into a definitive agreement in connection with or consummated any Acquisition Proposal.
 
Our only remedy under the Merger Agreement is to seek specific performance of the Parent and Merger Sub’s obligations under the Merger Agreement; provided, that if a court of competent jurisdiction will not specifically enforce the Merger Agreement, we may pursue other remedies at law or in equity, including monetary damages.

 
43

 
Effect of Termination
 
Subject to our obligation to pay the Termination Fee in certain circumstances and each party’s respective right to specific performance in certain circumstances, if the Merger Agreement is terminated by us or Parent in accordance with its terms, the Merger Agreement will become void and of no effect, with no liability or obligation on the part of any party (or any stockholder, director, officer, employee, agent, consultant or representative of such party) to the other party to the Merger Agreement, except for certain specific provisions that survive in accordance with the Merger Agreement and any liability of Parent or the Company for such party’s fraud or knowing and intentional breach of the Merger Agreement.
 
Amendment
 
Subject to the requirements of the applicable law, the Merger Agreement may be amended by the parties thereto by action taken or authorized by or on behalf of their respective boards of directors, at any time prior to the Closing Date, whether before or after adoption of the Merger Agreement by the stockholders of the Company and Merger Sub; provided that the Merger Agreement may not be amended except by an instrument in writing signed by the parties to the Merger Agreement.
 
Extension; Waiver
 
At any time prior to the Effective Time, any party to the Merger Agreement may (i) extend the time for the performance of any of the obligations or other acts of the other parties to the Merger Agreement, (ii) waive any inaccuracies in the representations and warranties by the other party contained in the Merger Agreement or in any document delivered pursuant thereto, and (iii) subject to the requirements of applicable law, waive compliance by the other party with any of the agreements or conditions contained in the Merger Agreement. Any such extension or waiver will be valid only if set forth in an instrument in writing signed by the party or parties to be bound thereby. The failure of any party to the Merger Agreement to assert any of its rights under the Merger Agreement or otherwise will not constitute a waiver of such rights.

 
 
44

 
THE VOTING AGREEMENTS
 
The following sections describe the material provisions of the Voting Agreement but do not purport to describe all of the terms of the Voting Agreements. The summary of the material terms of the Voting Agreement below and elsewhere in this proxy statement is qualified in its entirety by the Voting Agreements. The full text of the form of Voting Agreements are attached to this proxy statement as Annexes B and C and are incorporated by reference into this proxy statement. This summary may not contain all of the information about the Merger that is important to you. You are urged to carefully read the Voting Agreements in their entirety because it they are legal documents that govern the obligations of certain of our directors in connection with the Merger.

In connection with the Merger Agreement, each of the Locked-up Stockholders, acting solely in their capacities as stockholders of Adams Golf, entered into a separate Voting Agreement with Parent, dated as of March 18, 2012, pursuant to which each of the Locked-up Stockholders agreed to take the following actions, among others, during the term of the Voting Agreement: (1) vote such Locked-up Stockholder's Voting Agreement Shares in favor of the Merger and in favor of any transactions related to the Merger; (2) vote such Locked-up Stockholder's Voting Agreement Shares against any alternative business combination transaction; and (3) grant an irrevocable proxy to Parent with respect to such Locked-up Stockholder’s Voting Agreement Shares.

Each Locked-up Stockholder also agreed not to, directly or indirectly, sell, pledge, encumber, grant an option with respect to, transfer or otherwise dispose of any of the Voting Agreement Shares, other than transfers to Parent or to any member of such Locked-up Stockholder’s immediate family or a trust for the benefit of any such person, for personal tax-planning purposes or to a charitable organization qualified under Section 501(c)(3) of the Internal Revenue Code of 1986, or consent to, a transfer of, any of the voting shares or stockholder’s voting or economic interest therein. In addition, if the Locked-up Stockholders acquire beneficial or record ownership of any additional shares of the Company, such shares will also be subject to the Voting Agreements. The Locked-up Stockholders have options and other unvested rights to acquire an aggregate of 75,000 shares of Common Stock, which would be subject to the Voting Agreements upon exercise.

If the Board of Directors makes an Adverse Recommendation Change against the Merger in the case of an Intervening Event in accordance with the Merger Agreement, certain of the Voting Agreement Shares would be automatically released from the Voting Agreements, such that the aggregate Voting Agreement Shares would equal 30% of the issued and outstanding shares of Common Stock of the Company.  Additionally, the Voting Agreements executed by Messrs. John M. Gregory, Joseph G. Gregory and SJ Strategic also contain certain provisions which specify that such Locked-up Stockholders do not have, and will not exercise, the right to vote certain shares of Common Stock held by Mr. Ronald E. Casati in connection with stockholder approval of the Merger, as more fully described in such Voting Agreements.

The Voting Agreements and all obligations of each such Locked-up Stockholder under the Voting Agreement will terminate upon the earlier of (i) the termination of the Merger Agreement in accordance with its terms, (ii) the effective time of the Merger, (iii)  the date immediately following the date of the stockholders meeting to vote on the Merger Agreement, (iv) the date that Parent notifies the Company in writing that it is not willing or not able to proceed with the Merger on substantially the terms set forth in the Merger Agreement, and (v) the date upon which the parties to such Voting Agreement agree in writing to terminate such Voting Agreement.   A copy of the forms of Voting Agreements are attached to this proxy statement as Annexes B and C, which we incorporate by reference into this document.

 
45

 
MARKET PRICE OF COMMON STOCK
 
 
Our Common Stock is listed for trading on the NASDAQ Capital Market under the symbol “ADGF.” The following table sets forth, for the fiscal quarters indicated, the high and low closing prices per share as reported by the NASDAQ Capital Market.
 
 
   
Common Stock
 
   
High
   
Low
 
   
FISCAL YEAR 2010
               
First Quarter (January 1 — March 31)
 
$
3.50
   
$
2.95
 
Second Quarter (April 1 — June 30)
 
$
4.32
   
$
3.30
 
Third Quarter (July 1 — September 30)
 
$
5.02
   
$
3.26
 
Fourth Quarter (October 1 — December 31)
 
$
4.90
   
$
4.21
 
FISCAL YEAR 2011
               
First Quarter (January 1 — March 31)
 
$
6.20
   
$
4.75
 
Second Quarter (April 1 — June 30)
 
$
7.88
   
$
4.83
 
Third Quarter (July 1 — September 30)
 
$
7.59
   
$
4.83
 
Fourth Quarter (October 1 — December 31)
 
$
6.46
   
$
4.95
 
FISCAL YEAR 2012
               
First Quarter (January 1 — March 31 )
 
$
10.76
   
$
6.31
 
Second Quarter (April 1 — [   ])
 
$
10.72
   
$
10.78
 
 
The closing sale price of the Common Stock on the NASDAQ Capital Market on March 16, 2012, the last trading day prior to the execution and amendment of the Merger Agreement, was $9.86 per share. On [  ], the last trading day before the filing of this proxy statement, the closing price for the Common Stock on the NASDAQ Capital Market was $[  ]  per share. You are encouraged to obtain current market quotations for Common Stock in connection with voting your shares.

 
46

 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
 
The following table contains information, as of [  ], with respect to the beneficial ownership of Common Stock by (1) each individual or entity whom we know to own beneficially more than five percent of Common Stock; (2) each current director; (3) our two current executive officers; and (4) all of our current directors and executive officers as a group. Unless otherwise indicated, all persons named below can be reached at 2801 E. Plano Parkway, Plano, Texas 75074.
 
Name of Beneficial Owner
 
Amount and Nature
of Beneficial Ownership(1)
   
Percent
of Class(2)
 
Certain Persons
           
SJ Strategic Investments LLC (3)
    2,720,792       34.0 %
Roland E. Casati (4)
    459,650       5.7 %
Nantahala Capital Management, LLC(5)
    579,155       7.2 %
Taylor Made Golf Company, Inc. (6)
    2,793,937       34.8 %
                 
Directors and Named Executive Officers
               
B.H. (Barney) Adams (7)
    456,976       5.7 %
Oliver G. Brewer III (8)
    842,400       10.5 %
Russell L. Fleischer (9)
    24,773       *  
John M. Gregory (10)
    2,720,792       34.0 %
Joseph R. Gregory (11)
    2,720,792       34.0 %
Mark R. Mulvoy (12)
    25,023       *  
Robert D. Rogers (13)
    26,023       *  
Pamela High
    79,528       1.0 %
                 
All Directors and Executive Officers as a Group
    3,333,115       41.5 %

 *  Less than 1%

(1)  
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities for which such person or entity currently has beneficial ownership or has the right to acquire beneficial ownership with 60 days of [______], 2012.
(2)  
Applicable percentage of ownership is based on [7,995,511] voting shares of common stock outstanding on [  ].
(3)  
Includes (a) 1,119,673 shares owned by Mr. Joseph R. Gregory, the brother of Mr. John Gregory, (b) 12,273 shares owned by Mr. John Gregory, the managing member of SJ Strategics, and (c) 459,650 shares owned by Mr. Roland E. Casati, for which SJ Strategic Investments and Messrs. John Gregory and Joseph Gregory may be deemed to have beneficial ownership as a result of a voting agreement with Mr. Casati. SJ Strategic Investments has disclaimed beneficial ownership of the shares owned by Mr. Joseph R. Gregory and Mr. John Gregory. The address for SJ Strategic Investments LLC is 340 Edgemont Avenue, Suite 200, Bristol, TN 37620. Such beneficially owned shares of Common Stock are subject to a Voting Agreement with Taylor Made Golf Company, Inc. (“Parent”), that is more fully described in the section entitled “Voting Agreements” above.
(4)  
The address for Mr. Casati is Continental Offices, Ltd., 2700 River Road, Suite 211, Des Plaines, IL 60018.  Mr. Casati may be deemed to have beneficial ownership of 2,261,142 shares of Common Stock as a result of a voting agreement with SJ Strategic Investments and Messrs. John Gregory and Joseph Gregory.  Mr. Casati has disclaimed beneficial ownership of the shares of Common Stock owned by SJ Strategic Investments, Mr. Joseph R. Gregory and Mr. John Gregory.
(5)  
Nantahala Capital Management, LLC (“Nantahala”) is the general partner and/or the investment manager of Nantahala Capital Partners Limited Partnership, Nantahala Capital Partners II Limited Partnership, Nantahala Capital Partners LC Limited Partnership, Blackwell Partners LLC and Silver Creek CS SAV, LLC (collectively, the “Nantahala Investment Vehicles”).  Nantahala has the power to vote and direct the disposition of the shares of Common Stock owned by the Nantahala Investment Vehicles.  The principal purpose of the Nantahala Investment Vehicles is to invest in securities.  The principal business of Nantahala is to serve as the general partner and/or the investment manager of the Nantahala Investment Vehicles and other investment vehicles.  The principal business address for Nantahala is 100 First Stamford Place, 2nd Floor, Stamford, CT 06902.  The number of shares set forth in the table for Nantahala is based solely on Nantahala's Amedment No. 1 to Schedule 13D filed with the SEC on January 10, 2012.
(6)  
Taylor Made Golf Company, Inc., or Parent, may be deemed to have beneficial ownership of 2,793,937 shares of Common Stock (including a total of 75,000 unvested Restricted Stock Shares and unexercised options to purchase shares of Common Stock) by virtue of those certain Voting Agreements between Parent and each of SJ Strategic Investments and Messrs. John M. Gregory, Joseph R. Gregory, B.H. (Barney) Adams, Russell L. Fleischer, Mark R. Mulvoy, and Robert D. Rogers. Such Voting Agreements are more fully described in the section entitled “Voting Agreements” above.

 
47

 

(7)  
Includes 456,976 shares Mr. Adams holds jointly with Jackie Adams, his spouse. Such beneficially owned shares of Common Stock are subject to a Voting Agreement with Parent that is more fully described in the section entitled “Voting Agreements” above.
(8)  
The address for Mr. Brewer is 2180 Rutherford Rd., Carlsbad, CA 92008.  Mr Brewer was the CEO and a Director of the Company until he resigned effective as of February 29, 2012.
(9)  
Includes (a) vested options to purchase 12,500 shares of Common Stock held by Mr. Fleischer and (b) 7,500 unvested Restricted Stock Shares for which Mr. Fleischer does not have the power to dispose. Such beneficially owned shares of Common Stock are subject to a Voting Agreement with Parent that is more fully described in the section entitled “Voting Agreements” above.
(10)  
Includes (a) 1,116,923 shares owned by SJ Strategic Investments LLC, (b) 1,119,673 shares owned by Mr. Joseph R. Gregory, (c) 7,500 unvested Restricted Stock Shares for which Mr. John Gregory does not have the power to dispose and (d) 459,650 shares owned by Mr. Casati, for which SJ Strategic Investments and Messrs. John Gregory and Joseph Gregory may be deemed to have beneficial ownership as a result of a voting agreement with Mr. Casati. Mr. John Gregory is the managing member of SJ Strategic Investments LLC. Mr. Joseph Gregory is the brother of Mr. John Gregory. Mr. John Gregory has disclaimed beneficial ownership of the shares owned by Mr. Joseph Gregory. Such beneficially owned shares of Common Stock are subject to a Voting Agreement with Parent that is more fully described in the section entitled “Voting Agreements” above.
(11)  
Includes (a) 1,116,923 shares owned by SJ Strategic Investments LLC, (b) 12,273 shares owned by Mr. John Gregory, (c) 7,500 unvested Restricted Stock Shares for which Mr. Joseph Gregory does not have the power to dispose and (d) 459,650 shares owned by Mr. Casati, for which SJ Strategic Investments and Messrs. John Gregory and Joseph Gregory may be deemed to have beneficial ownership as a result of a voting agreement with Mr. Casati. Mr. Joseph Gregory’s brother, Mr. John Gregory, is the managing member of SJ Strategic Investments LLC. Mr. Joseph Gregory has disclaimed beneficial ownership of the shares owned by SJ Strategic Investments and Mr. John Gregory. Such beneficially owned shares of Common Stock are subject to a Voting Agreement with Parent that is more fully described in the section entitled “Voting Agreements” above.
(12)  
Includes (a) vested options to purchase 12,500 shares of Common Stock held by Mr. Mulvoy and (b) 7,500 unvested Restricted Stock Shares for which Mr. Mulvoy does not have the power to dispose. Such beneficially owned shares of Common Stock are subject to a Voting Agreement with Parent that is more fully described in the section entitled “Voting Agreements” above.
(13)  
Includes (a) vested options to purchase 12,500 shares of Common Stock held by Mr. Rogers and (b) 13,523 shares of Common Stock held by a trust (including 7,500 unvested Restricted Stock Shares for which such trust does not have the power to dispose) for which Mr. Rogers has sole voting and dispositive power over the shares held by the trust. Such beneficially owned shares of Common Stock are subject to a Voting Agreement with Parent that is more fully described in the section entitled “Voting Agreements” above.

 


 
48

 
RIGHTS OF APPRAISAL
 
 
Under the DGCL, you have the right to dissent from the Merger and to receive payment in cash for the fair value of your Common Stock as determined by the Delaware Court of Chancery (the “Delaware Court”), together with interest, if any, as determined by the Delaware Court, in lieu of the consideration you would otherwise be entitled to pursuant to the Merger Agreement. These rights are known as appraisal rights. Adams Golf’s stockholders electing to exercise appraisal rights must comply with the provisions of Section 262 of the DGCL in order to perfect their rights.
 
The following is intended as a brief summary of the material provisions of the Delaware statutory procedures required to be followed by a stockholder in order to dissent from the Merger and perfect appraisal rights.
 
This summary, however, is not a complete statement of all applicable requirements and is qualified in its entirety by reference to Section 262 of the DGCL, the full text of which appears in Annex E to this proxy statement and is incorporated herein by reference. Failure to precisely follow any of the statutory procedures set forth in Section 262 of the DGCL may result in a termination or waiver of your appraisal rights.
 
As described further below, a record holder of Common Stock must make a demand for appraisal.  All references in this summary of appraisal rights to a “stockholder” are to record holders of Common Stock, unless otherwise specified.  Section 262 requires that stockholders be notified that appraisal rights will be available not less than twenty (20) days before the stockholders’ meeting to vote on the Merger. A copy of Section 262 must be included with such notice. This proxy statement constitutes Adams Golf’s notice to its stockholders of the availability of appraisal rights in connection with the Merger in compliance with the requirements of Section 262. Stockholders who wish to consider exercising their appraisal rights should carefully review the text of Section 262 contained in Annex E since failure to timely and properly comply with the requirements of Section 262 will result in the loss of appraisal rights under the DGCL.
 
Stockholders who elect to demand appraisal of their shares must satisfy each of the following conditions:

•     A stockholder must deliver to Adams Golf a written demand for appraisal of his, her or its shares before the vote with respect to the Merger is taken. This written demand for appraisal must be in addition to and separate from any proxy or vote abstaining from or voting against the adoption of the Merger Agreement. Voting against or failing to vote for the adoption of the Merger Agreement by itself does not constitute a demand for appraisal within the meaning of Section 262;

•     A stockholder must not vote in favor of or consent to the adoption of the Merger Agreement. A vote in favor of the adoption of the Merger Agreement, by proxy or in person, will constitute a waiver of your appraisal rights and will nullify any previously filed written demands for appraisal. If you fail to comply with either of these conditions and the Merger is completed, you will be entitled to receive the cash payment for your shares of Common Stock as provided for in the Merger Agreement, but you will have no appraisal rights with respect to your shares of Common Stock; and

•     A stockholder must continuously have record ownership of the shares through the Effective Time.
 
 
All demands for appraisal should be addressed to Adams Golf, Inc., 2801 E. Plano Parkway, Plano, Texas 75074, Attention: Pamela High, and must be delivered before the vote on the Merger Agreement is taken at the special meeting and must be executed by, or on behalf of, the record holder of the shares of Common Stock. The demand must reasonably inform Adams Golf of the identity of the record holder and the intention of such holder to demand appraisal of his, her or its shares.
 
Beneficial owners who do not also hold the shares of record may not directly make appraisal demands to Adams Golf. The beneficial holder must, in such cases, act promptly to have the registered owner, such as a broker or other nominee, submit the required demand in respect of those shares in a timely manner. If shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of a demand for appraisal should be made by or for the fiduciary; and if the shares are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand should be executed by or for all joint owners. An authorized agent, including an authorized agent for two or more joint owners, may execute the demand for appraisal for a stockholder of record; however, the agent must identify the record owner or owners and expressly disclose the fact that, in executing the demand, he or she is acting as agent for the record owner. A record owner, such as a broker, who holds shares as a nominee for others, may exercise his or her rights of appraisal with respect to the shares held for one or more beneficial owners, while not exercising this right for other beneficial owners. In that case, the written demand should state the number of shares as to which appraisal is sought. Where no number of shares is expressly mentioned, the demand will be presumed to cover all shares held in the name of the record owner. If a stockholder holds shares of Common Stock through a broker who in turn holds the shares through a central securities depository nominee such as Cede & Co., a demand for appraisal of such shares must be made by or on behalf of the depository nominee and must identify such nominee as the record holder.
 
 
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If you hold your shares of Common Stock in a brokerage account or in other nominee form and you wish to exercise appraisal rights, you should consult with your broker or the other nominee to determine the appropriate procedures for the making of a demand for appraisal by the nominee.
 
Within ten (10) days after the Effective Time, the surviving corporation must give written notice that the Merger has become effective to each Company stockholder who has complied with Section 262 and who did not vote in favor of or consent to the Merger Agreement. At any time within sixty (60) days after the Effective Time, any stockholder who has demanded an appraisal but has not commenced an appraisal proceeding or joined an appraisal proceeding as a named party has the right to withdraw the demand and to accept the cash payment specified by the Merger Agreement for his, her or its shares of Common Stock.  Within one hundred twenty (120) days after the Effective Time, either the surviving corporation or any stockholder who has complied with the requirements of Section 262 may file a petition in the Delaware Court demanding a determination of the fair value of the shares held by all stockholders entitled to appraisal. Upon the filing of the petition by a stockholder, service of a copy of such petition must be made upon the surviving corporation. The surviving corporation has no obligation or present intent to file such a petition. Accordingly, the failure of a stockholder to file such a petition within the period specified could nullify the stockholder’s previously written demand for appraisal.  Within one hundred twenty (120) days after the Effective Time, any stockholder who has complied with Section 262 will, upon written request to the surviving corporation, be entitled to receive a written statement setting forth the aggregate number of shares not voted in favor of the Merger Agreement and with respect to which demands for appraisal rights have been received and the aggregate number of holders of such shares. A person who is the beneficial owner of shares of Common Stock held in a voting trust or by a nominee on behalf of such person may, in such person’s own name, file an appraisal petition or request the written statement described in the previous sentence.  Such written statement will be mailed to the requesting stockholder within ten (10) days after such written request is received by the surviving corporation or within ten (10) days after expiration of the period for delivery of demands for appraisal, whichever is later.
 
If a petition for appraisal is duly filed by a stockholder and a copy of the petition is delivered to the surviving corporation, the surviving corporation will then be obligated, within twenty (20) days after receiving service of a copy of the petition, to provide the Delaware Court with a duly verified list containing the names and addresses of all stockholders who have demanded an appraisal of their shares and with whom agreements as to the value of their shares have not been reached by the surviving corporation. After notice, if so ordered by the Delaware Court, to dissenting stockholders who demanded appraisal of their shares, the Delaware Court is empowered to conduct a hearing upon the petition, and to determine those stockholders who have complied with Section 262 and who have become entitled to the appraisal rights provided thereby. The Delaware Court may require the stockholders who have demanded appraisal for their shares to submit their stock certificates to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with that direction, the Delaware Court may dismiss the proceedings as to that stockholder.
 
After determination of the stockholders entitled to appraisal of their shares of Adams Golf’s Common Stock, the Delaware Court will appraise the shares owned by such stockholders, determining their fair value exclusive of any element of value arising from the accomplishment or expectation of the Merger, together with interest, if any, to be paid upon the amount determined to be fair value. When the value is determined, the Delaware Court will direct the payment of such value, with interest, if any, to the stockholders entitled to receive the same, upon surrender by such holders of the certificates representing those shares.  Unless the Delaware Court in its discretion determines otherwise for good cause shown, interest from the effective date of the Merger through the date of payment of the judgment shall be compounded quarterly and shall accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective date of the Merger and the date of payment of the judgment.

In determining fair value, the Delaware Court is required to take into account all relevant factors. Accordingly, the determination could be based upon considerations other than, or in addition to, the market value of the Common Stock, including, among other things, asset values and earning capacity. In Weinberger v. UOP, Inc., the Delaware Supreme Court stated that “proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court” should be considered in an appraisal proceeding and that “[f]air price obviously requires consideration of all relevant factors involving the value of a company.”  The Delaware Supreme Court has stated that in making this determination of fair value the court must consider market value, asset value, dividends, earnings prospects, the nature of the enterprise and any other facts which could be ascertained as of the date of the merger which throw any light on future prospects of the merged corporation.  The Weinberger Court also noted that, under Section 262, fair value is to be determined “exclusive of any element of value arising from the accomplishment or expectation of the Merger.”  In Cede & Co. v. Technicolor, Inc., the Delaware Supreme Court stated that such exclusion is a “narrow exclusion [that] does not encompass known elements of value,” but which rather applies only to the speculative elements of value arising from such accomplishment or expectation.  In Weinberger, the Delaware Supreme Court construed Section 262 to mean that “elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered.”  Since any such judicial determination of the fair value of the Common Stock could be based upon considerations other than or in addition to the price paid in the Merger and the market value of the Common Stock, stockholders should recognize that the value so determined could be higher or lower than the price per share of Common Stock paid pursuant to the Merger.  Holders of Common Stock should note that an investment banking opinion as to the fairness, from a financial point of view, of the consideration payable in a sale transaction, such as the Merger, is not an opinion as to

 
50

 
fair value under Section 262.  Moreover, the Company does not anticipate offering more than the merger consideration to any stockholder exercising appraisal rights and the Company may argue in an appraisal proceeding that, for purposes of such a proceeding, the fair value of the Common Stock is less than the price paid in the Merger. You should be aware that the fair value of your shares as determined under Section 262 could be more than, the same as, or less than the value that you are entitled to receive under the terms of the Merger Agreement.
 
Costs of the appraisal proceeding may be imposed upon the surviving corporation and the stockholders participating in the appraisal proceeding by the Delaware Court as the Delaware Court deems equitable in the circumstances.  However, costs do not include attorneys’ and expert witness fees.  Each dissenting stockholder is responsible for his or her attorneys’ and expert witness expenses, although, upon the application of a stockholder, the Delaware Court may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts, to be charged pro rata against the value of all shares entitled to appraisal. Any stockholder who had demanded appraisal rights will not, after the Effective Time, be entitled to vote shares subject to that demand for any purpose or to receive payments of dividends or any other distribution with respect to those shares, other than with respect to payment as of a record date prior to the Effective Time.  If no petition for appraisal is filed within one hundred twenty (120) days after the Effective Time, or if the stockholder has not commenced an appraisal proceeding and delivers to the surviving corporation a written withdrawal of his, her or its demand for appraisal and an acceptance of the terms of the Merger within sixty (60) days after the Effective Time, then the right of that stockholder to appraisal will cease and that stockholder will be entitled to receive the cash payment for shares of his, her or its Common Stock pursuant to the Merger Agreement. Any withdrawal of a demand for appraisal made more than sixty (60) days after the Effective Time may only be made with the written approval of the surviving corporation. In addition, no appraisal proceeding may be dismissed as to any stockholder without the approval of the Delaware Court, and such approval may be conditioned upon such terms as the Delaware Court deems just; provided, however, that the foregoing shall not affect the right of any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party to withdraw such stockholder’s demand for appraisal and to accept the terms offered upon the Merger within 60 days.
 
In view of the complexity of Section 262, Adams Golf’s stockholders who may wish to dissent from the Merger and pursue appraisal rights should consult their legal advisors.
 
 
SUBMISSION OF STOCKHOLDER PROPOSALS
 
If the Merger is consummated, we will not have public stockholders and there will be no public participation in any future meeting of stockholders. However, if the Merger is not completed or if we are otherwise required to do so under applicable law, we would hold a 2012 annual meeting of stockholders. Any stockholder proposals to be considered timely for inclusion in the 2012 proxy statement must be submitted in writing to our principal executive offices, Adams Golf, Inc., 2801 E. Plano Parkway, Plano, Texas 75074 and must have been received no later than December 10, 2011 (120 days prior to the first anniversary of the 2011 proxy statement).

Our Bylaws provide that stockholder proposals and director nominations by stockholders may be made in compliance with certain advance notice, informational and other applicable requirements.  The notice must be delivered to the secretary of the Company (1) at least 90 days before any scheduled meeting or (2) if less than 100 days notice or prior public disclosure of the meeting is given, by the close of business on the 10th day following the giving of notice or the date public disclosure was made, whichever is earlier.  Stockholder proposals to be presented at the 2012 annual meeting of stockholders which are not to be included in the Company’s proxy materials must have been received by the Company no later than February 22, 2012, if our 2012 annual meeting is held on May 22, 2012 or no later than the 10th day following notice or public disclosure of the annual meeting date, if the annual meeting is held on another date.  Stockholder proposals must also comply with the SEC’s rules concerning the inclusion of stockholder proposals in company-sponsored proxy materials as set forth in Rule 14a-8 promulgated under the Exchange Act and our bylaws.

For any proposal that is not submitted for inclusion in the 2012 proxy statement (as described in the preceding paragraph) but is instead sought to be presented directly at the 2012 annual meeting, SEC rules permit management to vote proxies in its discretion if our 2012 annual meeting is on or before June 9, 2012 and we (a) received notice of the proposal before the close of business on February 23, 2012 and advise stockholders in the 2012 proxy statement about the nature of the matter and how management intends to vote on the matter, or (b) did not receive notice of the proposal prior to the close of business on February 23, 2012.


HOUSEHOLDING OF SPECIAL MEETING MATERIALS
 
Some banks, brokers, and other nominee record holders may be participating in the practice of “householding” proxy statements and annual reports. This means that only one copy of this notice and proxy statement may have been sent to multiple stockholders in your household. If you would prefer to receive separate copies of a proxy statement or annual report either now or in the future, please (1) mail your request to Adams Golf, Inc., 2801 E. Plano Parkway, Plano, Texas 75074, Attn: Investor Relations, or (2) call

 
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our Investor Relations department at (972) 819-0700. Upon written or oral request, we will provide a separate copy of the annual reports and proxy statements. In addition, security holders sharing an address can request delivery of a single copy of annual reports or proxy statements if you are receiving multiple copies upon written or oral request at the address and telephone number stated above.
 
 
WHERE YOU CAN FIND MORE INFORMATION
 
We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any document we file at the SEC’s public reference room located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our SEC filings are also available to the public at the SEC’s website at http://www.sec.gov. You also may obtain free copies of the documents Adams Golf files with the SEC by going to the “Investors Relations” section of our website at www.adamsgolf.com. Our website address is provided as an inactive textual reference only. The information provided on our website is not part of this proxy statement, and therefore is not incorporated by reference.
 
Statements contained in this proxy statement, or in any document incorporated by reference in this proxy statement regarding the contents of any contract or other document, are not necessarily complete, and each such statement is qualified in its entirety by reference to that contract or other document filed as an exhibit with the SEC. The SEC allows us to “incorporate by reference” into this proxy statement documents we file with the SEC. This means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be a part of this proxy statement, and later information that we file with the SEC will update and supersede that information. We incorporate by reference any documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this proxy statement and before the date of the special meeting.
 
Any person, including any beneficial owner, to whom this proxy statement is delivered may request copies of proxy statements and any of the documents incorporated by reference in this document or other information concerning us, without charge, by written request directed to 2801 E. Plano Parkway, Plano, Texas 75074, Attn: Investor Relations, on Adams Golf’s website at www.adamsgolf.com, or from the SEC through the SEC’s website at the address provided above. Documents incorporated by reference are available without charge, excluding any exhibits to those documents unless the exhibit is specifically incorporated by reference into those documents.
 
THIS PROXY STATEMENT DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH PROXY SOLICITATION IN THAT JURISDICTION. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT TO VOTE YOUR SHARES AT THE SPECIAL MEETING. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT. THIS PROXY STATEMENT IS DATED [ • ]. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND THE MAILING OF THIS PROXY STATEMENT TO STOCKHOLDERS DOES NOT CREATE ANY IMPLICATION TO THE CONTRARY.
 
 
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ANNEX A
 
 
 




AGREEMENT AND PLAN OF MERGER
 

 
by and among
 

 
TAYLOR MADE GOLF COMPANY, INC.,
 
APPLE TREE ACQUISITION CORP.
 
and
 
ADAMS GOLF, INC.
 

 

 
dated as of
 

 
March 18, 2012


 
 

 
A-1

 
TABLE OF CONTENTS
 
  Page
   
Article I THE MERGER
1
Section 1.1
The Merger
1
Section 1.2
Closing
1
Section 1.3
Effective Time
2
Section 1.4
Effect of the Merger
2
Section 1.5
Certificate of Incorporation; Bylaws.
2
Section 1.6
Directors and Officers of the Surviving Corporation
2
Article II EFFECT OF THE MERGER ON Equity Interests
2
Section 2.1
Conversion of Securities
2
Section 2.2
Payment; Surrender of Equity Interest; Stock Transfer Books.
3
Section 2.3
Treatment of Company Stock Plan.
5
Section 2.4
Dissenting Shares.
6
Section 2.5
Subsequent Actions
7
Section 2.6
Adjustments
7
Section 2.7
Lost Certificates
7
Article III REPRESENTATIONS AND WARRANTIES OF THE COMPANY
8
Section 3.1
Organization.
8
Section 3.2
Authorization; Validity of Agreement; Company Action.
8
Section 3.3
Consents and Approvals; No Violations
9
Section 3.4
Capitalization.
9
Section 3.5
SEC Reports and Financial Statements.
11
Section 3.6
Absence of Certain Changes
14
Section 3.7
No Undisclosed Material Liabilities
14
Section 3.8
Compliance with Laws and Court Orders
14
Section 3.9
Material Contracts.
14
Section 3.10
Information in Proxy Statement
16
Section 3.11
Litigation
16
Section 3.12
Labor Matters
16
Section 3.13
Employee Compensation and Benefit Plans; ERISA.
17
Section 3.14
Properties.
18
Section 3.15
Intellectual Property.
19
 
 
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Section 3.16
Environmental Laws.
20
Section 3.17
Taxes.
21
Section 3.18
Fairness Opinion
23
Section 3.19
Brokers or Finders
23
Section 3.20
State Takeover Statutes
23
Section 3.21
Insurance
23
Section 3.22
Related Party Transactions
24
Section 3.23
Illegal Payments, etc.
24
Section 3.24
Top Customers and Suppliers.
24
Section 3.25
Rebates and Discounts.
24
Section 3.26
No Other Representations or Warranties
25
Article IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
25
Section 4.1
Organization; Ownership of Merger Sub
25
Section 4.2
Authorization; Validity of Agreement; Necessary Action
25
Section 4.3
Consents and Approvals; No Violations
26
Section 4.4
Ownership of Common Stock
26
Section 4.5
Information in Proxy Statement
26
Section 4.6
Transaction Funds; Sufficiency of Funds
26
Section 4.7
No Prior Activities
27
Section 4.8
Solvency
27
Section 4.9
Litigation
27
Section 4.10
Disclaimer of Warranties
28
Article V COVENANTS
28
Section 5.1
Interim Operations of the Company
28
Section 5.2
No Solicitation by the Company.
31
Section 5.3
SEC Filing Covenant
34
Section 5.4
Section 16 Matters
34
Article VI ADDITIONAL AGREEMENTS
35
Section 6.1
Preparation of Proxy Statement.
35
Section 6.2
Stockholders Meeting.
35
Section 6.3
Reasonable Best Efforts.
36
Section 6.4
Notification of Certain Matters
37
 
 
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Section 6.5
Access; Confidentiality
38
Section 6.6
Publicity
39
Section 6.7
Indemnification; Directors' and Officers' Insurance.
39
Section 6.8
Merger Sub Compliance
41
Section 6.9
Employee Matters.
41
Article VII CONDITIONS
42
Section 7.1
Conditions to Each Party's Obligation to Effect the Merger
42
Section 7.2